On November 8, 2023, the Financial Services Authority (Otoritas Jasa Keuangan or "OJK") issued OJK Circular Letter No. 19/SEOJK.06/2023 on the Implementation of Information Technology Based Collective Financing Services ("Letter 19/2023"). Letter 19/2023 sets out a detailed guideline for the implementation of OJK Regulation No. 10/POJK.05/2022, dated June 29, 2022 on Information Technology Based Collective Financing Services ("OJK Reg. 10/2022").
In Letter 19/2023, OJK lays out a more comprehensive list of requirements in performing the Peer-to-Peer Lending (the "P2P Lending") business process to fill in the gaps where OJK Reg. 10/2022 is silent. The topics covered under this Newsflash relate to the operations of business activities, fund distribution, repayment mechanism, outsourced work, interest rates, and payment success rates. We set out the salient provisions of Letter 19/2023 below.
- Business Activities of P2P Lending Provider
OJK Reg. 10/2022 states the business activities of a P2P Lending Provider (a "Provider") consist of (i) provision (penyediaan), (ii) management (pengelolaan), and (iii) operation (pengoperasian) of the P2P Lending. Further definitions of such elements of business activities that shall be performed by a P2P Lending Provider are not set out under OJK Reg. 10/2022.
Now, Letter 19/2023 specifically clarifies the details of each type of business activity, as follows:
- Provision Business Activity: providing an electronic system that brings together a borrower and a lender in a funding or lending transaction and providing other facilities such as customer services, virtual accounts, and escrow accounts;
- Management Business Activity: conducting activities including user identity verification, users' private data processing, funding or lending disbursement from lender to borrower, fund repayment from borrower to lender, and debt collection; and
- Operation Business Activity: performing operational activities of the Electronic System it owns in full.
- Fund Disbursement and Repayment Mechanism
Letter 19/2023 provides a comprehensive procedure for a lender and a borrower in receiving and disbursing funds within a Provider's platform. Prior to approving certain funds to be provided by a lender, a Provider shall conduct an analysis by way of (i) verification of a document's authenticity submitted by a lender, (ii) confirmation and clarification to the lender on matters regarding anti-money laundering and counter-terrorist financing, and (iii) an analysis of the prospective lender.
From the borrower's side, a Provider shall conduct a credit scoring on a prospective borrower before a borrower may borrow through the platform. Following a borrower's request to borrow funds, a borrower's credit scoring shall be conducted by way of (i) verification of the document's authenticity submitted by the borrower, (ii) confirmation and clarification to the borrower on matters regarding anti-money laundering and counter-terrorist financing, (iii) process of data from other relevant third parties for the purpose of scoring (if necessary), and (iv) an analysis of the prospective lender. Based on such analysis, the Provider shall determine whether or not a borrower is eligible for the disbursement of funds in the Provider's electronic system.
Letter 19/2023 explicitly states that the scoring conducted by a Provider shall take into account the character and repayment capacity of the prospective borrower. It is stipulated under Section IV.3.i of Letter 19/2023 that scoring on the repayment capacity for consumptive funding or lending shall be conducted by way of comparing the total amount of the principal payment amount and economic benefits that are paid by the borrower with the income of the borrower. The repayment capacity of the borrower is set to be at a maximum of:
- 50% (fifty percent) on the first year since the issuance of Letter 19/2023;
- 40% (forty percent) on the second year since the issuance of Letter 19/2023; and
- 30% (thirty percent) on the third year since the issuance of Letter 19/2023.
Once the analysis for both the prospective lender and the borrower is complete, the prospective lender may choose the prospective borrower on a Provider's electronic system and proceed with the execution of the P2P Lending agreement using an electronic signature. Thereafter, the payment mechanism of the funding or lending shall be disbursed by the lender through a payment gateway or a virtual account to be placed in the Provider's escrow account which will be further transferred to the borrower.
- Prohibition on the Utilization of an Outsourced Worker
OJK Reg. 10/2022 stipulates that a Provider is permitted to have an outsourcing agreement through (i) a job-chartering agreement; and/or (ii) an outsourcing agreement. However, Article 19(2) of OJK Reg. 10/2022 limits that the work function of assessment of funding or lending feasibility and/or information technology may not be outsourced to another third party.
Under Section V.5 of Letter 19/2023, such function is elaborated to cover that the prohibition on the outsourced work on the works that perform the function of assessment of funding or lending feasibility is only regarding the scoring of the funding or lending feasibility. In line with the foregoing, a Provider may still cooperate with a credit information processing agency to increase the data reference in conducting the funding or lending feasibility scoring.
Letter 19/2023 further stipulates that the prohibition of outsourcing in the information technology works which essentially relates to the development and operation of the information technology, which comprise of (i) user access management activities, (ii) database management activities, (iii) backup and restore activities, (iv) troubleshooting, and (v) disaster recovery.
- Interest Rates for P2P Lending
Previously, the interest rate for P2P Lending Activities was only regulated under the Indonesia Fintech Lending Association (Asosiasi Fintech Pendanaan Indonesia or "AFPI") Code of Conduct which was amended periodically since its first issuance in 2018 and its latest amendment in 2021. Under such AFPI Code of Conduct, the applicable rate is a maximum of flat interest rate of 0.4% per day, calculated based on the principal lending amount.
While OJK Reg. 10/2022 does not stipulate any maximum interest rate, Articles 29(1) and (2) of OJK Reg. 10/2022 require Providers to fulfill provisions on the maximum limitation of funding or lending economic benefits (batas maksimum manfaat ekonomi), which will be determined by OJK.
OJK through its Letter 19/2023 now stipulates the maximum limit of funding or lending economic benefits. To clarify, economic benefits that are imposed by a Provider are the return rate which includes: (i) interest/margin/profit sharing, (ii) administration fees/commission fees/platform fees/ujrah (compensation fees in syariah) equivalent to the relevant fees, and (iii) other costs, other than late fines, stamp duty, and taxes.
The maximum limits of funding or lending economic benefits under Letter 19/2023 are as follows:
- For productive funding or lending:
- 0.1% (zero point one percent) per calendar day of the value of the funding or lending balance, which is valid for 2 (two) years from January 1, 2024; and
- 0.067% (zero point zero six seven percent) per calendar day of the value of the funding or lending balance, which is valid from January 1, 2026.
- For consumptive funding or lending:
- 0.3% (zero point three percent) per calendar day of the value of the funding or lending balance, which is valid for 1 (one) year from January 1, 2024;
- 0.2% (zero point two percent) per calendar day of the value of the funding or lending balance, which is valid for 1 (one) year from January 1, 2025; and 0.1% (zero point one percent) per calendar day of the value of the funding or lending balance, which is valid from January 1, 2026.
The above rates are also applicable for the maximum limit of late fines according to Sector VI.4 of Letter 19/2023.
Similar to the provision under AFPI Code of Conduct, Letter 19/2023 clarifies that all economic benefits and late fines that may be imposed on the borrowers may not exceed 100% (one hundred percent) of the funding or lending value that is stated in the funding or lending agreement.
- Introduction of a New Payment Succes Rate
Before the issuance of Letter 19/2023, there was only one criterion for a Payment Succes Rate (Tingkat Keberhasilan Bayar or "TKB"), as governed under OJK Reg.10/2022, namely TKB90. Letter 19/2023 introduces additional TKBs, which are TKB 0, TKB30, and TKB60. These TKBs are the rate for success payment by the Provider in facilitating the completion of funding or lending obligation within 0 calendar days for TKB0, 30 calendar days for TKB30, 60 calendar days for TKB60, and 90 calendar days for TKB90.
Similar to the previous requirement under OJK Reg.10/2022, the TKB shall be published in the electronic system of the Provider as part of the funding or lending performance of a Provider along with the value of distributed funding or lending, the number of lenders, and the number of borrowers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
