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HIGHLY REGULATION INDONESIAN PEER TO PEER LENDING SERVICES

HIGHLY REGULATION INDONESIAN PEER TO PEER LENDING SERVICES

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Loan, Hold-Over, IOU, or Spot. These are just some of the common words as-sociated with ‘borrowing’ funds. While the need for ‘wiggle room’ in finances will never change, the methods at which this can be accomplished continue to evolve. Specifically, Peer to Peer lending has surfaced as such a mechanism.

In line with Indonesian financial technology sector developments, on 28th December 2016 Indonesia Financial Services Authority (“OJK”) issued a new Regulation No. 77/POJK.01/2016 regarding Technology Based Lending Services (“POJK”). We aim to highlight some of the main concerns regarding this Peer to Peer (P2P) Lending Services regulation.

Business Scope

First, it is helpful to identify the parties involved with their official definitions. According to POJK, a P2P lending scheme consists of Three Parties.

A Service Provider is a party who is obliged to manage and operate the financial technology for P2P lending services from the lender to the borrower. Sources of funds are from the lender. During the process, the Service Pro-vider is obliged to provide an Escrow and Virtual account for P2P lending purposes. Lender shall place the amount of funds being lent into the virtual account. The repayment from the borrower must be managed through the Service Provider’s Escrow account.

A Lender is a party who domiciles within the territory of Indonesia or outside of Indonesia who provides the funds to lend to the borrower. The amount of funds per lending transaction shall not exceed the amount of 2.000.000.000 (Two Billion) Indonesian Rupiah. Every P2P lending transaction is mandated to be in Indonesian Rupiah as the lending currency.

A Borrower is a party who originates and domiciles in the territory of the Re-public of Indonesia.


Legal Entity & Foreign Ownership Restriction

Par for Indonesian law, significant restrictions exist for both legal set-up and foreign involvement. The POJK have stimulated that the legal entity of the Service Provider must be in the form of a Limited Liability Company (PT) or a Cooperative (Koperasi) in order to act as a financial technology platform for P2P lending services; however the type of Cooperative which is entitled to per-form such services is regulated by Law No. 25 Year 1992.

Foreign investors are entitled to own up to 85% shares in a Limited Liability Company engaged in this sector.

Type of Agreement

The POJK have obliged the Service Provider to provide two types of Agree-ments associated with P2P lending services schemes:

    a. Agreement between the Service Provider and the Lender;
    b. Agreement between the Lender and the borrower.

Both Agreements must be in the form of an electronic document, which com-plies with Law No. 11 Year 2008 regarding Electronic Transactions.

Agreement Between the Service Provider and the Lender is a type of an Agreement that consists of:

    (i) Agreement number;
    (ii) The date of Agreement;
    (iii) Rights and Obligations of the Parties;
    (iv) Loan amount;
    (v) Interest rate;
    (vi) Commision rate;
    (vii) Loan period;
    (viii) Details of related cost;
    (ix) Provision related to fines;
    (x) Dispute settlement;

The Service Provider shall make the information regarding the Loan amount, purpose for the Loan funds, Interest rate, and Loan period accessible to the Lender. However, the information regarding the identity of the Borrower shall remain classified or confidential.

Agreement between the Lender and the Borrower is a type of an Agreement consist of:

    (i) Agreement number;
    (ii) The date of Agreement;
    (iii) Rights and Obligations of the Parties;
    (iv) Loan amount;
    (v) Interest rate;
    (vi) Installment amount;
    (vii) Loan period;
    (viii) Collateral (if any);
    (ix) Details of related cost;
    (x) Provision related to fines;
    (xi)Dispute settlement.

The Service Provider shall make the details regarding the lending Information accessible to the Borrower. However, the information regarding the identity of the Lender shall remain classified or confidential.


Prohibition Act

According to POJK, Service Provider is prohibited from:

    a. Conducting other business activity which is not regulated under POJK;
    b. Acting as Lender or a borrower;
    c. Provide guarantees for the fulfillment of the obligations of others; d. Issuing bonds;
    e. Providing recommendations for users;
    f. Providing misleading information;
    g. Conducting direct marketing aimed at users or the public through personal communication media without user consent;
    h. Applying retaliatory charges on a user who files a complaint.

Important Stipulations for Service Providers

As Indonesia’s technology sector begins to capitalize on this progressive form of lending, prospective Service Providers must consider several critical frame-work requirements:

    1. A Financial Technology Service Provider is obliged to implement an Anti Money Laundering System and a Terrorism Funding Prevention Program in all of the services it provides in compliance with the Indonesia Finan-cial Services Authority Regulation No. 12/POJK.01/2017 Year 2017 re-garding the Implementation of an Anti Money Laundering Program and Prevention of Terrorism Financing in the Financial Service Sector.

    2. A Financial Technology Service Provider is obliged to make and submit a report to The Central Bank of Indonesia (“BI”) in compliance with the Central Bank of Indonesia Regulation No. 19/12/PBI/2017 JO Governing Board Members Regulation No. 19/15/PADG/2017 regarding the Regis-tration Procedures and the Delivery of Information and the Monitoring of Financial Technology.

    3. A Financial Technology Service Provider is obliged to comply with the Fi-nancial Technology Regulatory Sandbox in compliance with the Central Bank of Indonesia Regulation No. 19/12/PBI/2017 JO Governing Board Members Regulation No.19/14/PADG/2017 concerning the Financial Technology RegulatorySandbox.

    4. A certain type of Financial Technology Service Provider is required to register as an Electronic Systems Provider in the Ministry of Communi-cation and Informatics in compliance with the Ministry of Communica-tion and Informatics regulation No. 36 Year 2014 regarding Electronic Systems Provider Registration Procedures.

Summary

The P2P lending market is within its nascency in Indonesia. However, Indone-sia has taken many proactive steps in regulating the industry to protect all parties involved. We will keep a close eye on how the government reacts to this inevitably changing landscape. Who knows? Maybe the new phrases asso-ciated with a loan will be ‘money click me’.

By: Erick Sanjaya Perkasa, S.H., M.Kn.

Jakarta, 17 January, 2018




HIGHLY REGULATION INDONESIAN PEER TO PEER LENDING SERVICES