Indonesia releases new rule on the Fintech industry to boost growth

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Indonesia releases new rule on the Fintech industry to boost growth

Indonesia’s financial Authority, the OJK (Otoritas Jasa Keuangan), has issued a new regulation last December on the financial technology (fintech) sector to promote room for exponential growth in the coming years.

Fintech peer-to-peer (P2P) lending businesspeople expressed great enthusiasm on the regulation, saying that it will boost investor confidence on Indonesian fintech firms and provide sufficient protection to customers.

Under the Financial Services Authority (OJK) Regulation No. 77/2016 on fintech, companies will enjoy minimum capital requirements, be given interest rate provisions, and have heightened protection and education on consumers.

According to Amartha Mikro Fintek vice president Aria Widyanto, the new rule obliges fintech businesses to be registered and supervised by the OJK, which will ultimately attract more investors due to the enhanced regulatory measures.

As new fintech start-ups begin to pop up across the Archipelago, it is but of no coincidence the issuance of the rule is quite timely. OJK recorded that by end of last year, there were 120 fintech firms currently operating in Indonesia – Southeast Asia’s largest economy. Many of these companies were labeled as start ups in various segments, including P2P lending, e-wallets, crowdfunding and financial settlements.

Moreover, the new rule requires every fintech P2P lending firm to register to the authority and secure a business license before running its operations. Other arrangements were also addressed within the regulations, including minimum capital prerequisites and absence of fund placement in a time deposit account.

By 2020, it is expected that Indonesia’s fintech industry could be worth USD 14.5 billion with overall transactions rising to 18.8 percent year-on-year.

The new regulations

Under the new regulation, a fintech company is required to have at least USD 74,239 (Rp 1 billion) in capital during registration, on top of the Rp 2.5 billion for the business permit application. These requirements are lower than the Rp 2 billion and Rp 5 billion respectively from the previous draft.

In an effort to give access to more loans, the new rule does not set a maximum interest rate cap. Instead, it offers better flexibility to fintech firms. Under the old draft, it was stated that the maximum interest rate was seven times that of Bank Indonesia’s seven-day reverse repurchase (repo) rate per annum.

“The Indonesian market is undoubtedly one of the biggest e-commerce markets in ASEAN. This ultimately signifies big opportunities for the fintech industry to blossom in the near future”, according to Gervasius Samosir, Associate Partner at Solidiance Indonesia, an Asia-focused management consulting firm.

He added, “What is important to note is that although consolidation between industry players may not happen in the near future, we can expect more players to emerge.”

Gervasius is confident that within the next 5 years, there will be more Fintech players who will be able to expand all key service offerings throughout 2-5 different business models; while others will prefer to focus on the niche market by nurturing their growth from one specific sub segment.

OJK chairman Muliaman D. Hadad admitted that the new rule is still at a nascent stage but hopes in the near future that the organization can provide fintech firms better transparency guidelines so as to be conducive to business growth.

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