Indonesia comes out with regulations for P2P lending platforms

Following the release of e-commerce roadmap in November, Indonesia ended 2016 by coming out with a new set of rules for the fintech sector, specifically regulating peer-to-peer (P2P) lending platforms.

The policies had long been anticipated by players, who had been working closely with the Indonesian financial services authority (OJK) to come up with rules governing lenders and borrowers.

The rules cover issues such as foreign ownership, minimum capital requirements, interest rate provision, and consumer protection. The enhanced regulatory measures are expected to lure more investors into fintech as confidence rises, government officials said.

Under the new rules, every P2P lending startup must register and obtain a business license from the authority before running its business. A company must have at least $74,239 in capital upon registering, and an additional $186,300 to apply for the operating license. In total, the company must have access to minimum $260,000. The numbers are half the required capital initially pegged in the draft version of the regulation, which was roughly $500,000.

Foreign ownership is limited to 85 per cent, and foreigners can only act as lenders. Hence, foreign businesses will need to find a local partner.

Loans that can be transacted cannot surpass $150,000, while there is no limit on the interest rates. The regulation only states that a fintech firm is to “advise” lenders and borrowers about its rate by “taking into account fairness and developments in the economy”. A draft version stipulated that the maximum interest rate was seven times that of the repo rate of the Indonesian Central Bank (4.75 per cent).

Furthermore, fintech firms are required to use escrow and virtual accounts in their business operation. This is to prevent platform owners to directly access the capital flowing between the lenders and the borrowers.

OJK calls for protection of customers and marketing ethics, but has not released any further details regarding those areas. Officials said that the new regulation is still subject to revisions.

High hopes for fintech

Indonesia has placed great hopes for fintech to become one of the key drivers in helping the country reach its $130 billion digital economy ambition by 2020. Many are expecting to see fintech playing a much bigger role in increasing financial inclusion for the mass, a problem that Indonesian banks have been struggling with.

In the past three years, Indonesia has been witnessing the emergence of fintech companies such as peer to peer lending company Modalku, mobile recharge platform Sepulsa, e-commerce financing company Kredivo, online micro-lending company UangTeman and many others. The Indonesian Chambers of Commerce and Industry (KADIN) has predicted that the industry will see up to $8 billion of investments by 2018.

Transactions through fintech in Indonesia are estimated to be Rp 40 trillion in the past two years, a rapid escalation alongside growth in internet usage in the country, with a third of its 250-million population going online. A fifth of that number, however, still have no bank accounts.

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