p2p lending indonesia

How to Establish a Legal Peer-to-Peer (P2P) Lending Business in Indonesia

  • InCorp Editorial Team
  • 23 November 2021
  • 5 minute reading time

Indonesia’s fintech industry is one of the most robust and thriving sectors in the ASEAN region. The country is already home to 20% of all fintech businesses in Southeast Asia, with market size clocking to USD 8.6 billion over the next five years.

The fintech industry is one of the most well-funded industries, alongside e-commerce, and it is dominated by peer-to-peer (P2P) lending (50%) and e-payment (23%) platforms. However, despite the fact that Indonesia has over 300 fintech businesses, global investors may discover that the industry is still developing, and coupled with the lack of financing services lending to MSMEs. Hence, it opens up a wide window of lucrative opportunities for foreign investors to tap into Indonesia’s peer-to-peer (P2P) lending industry.

But besides tremendous prospects, the peer-to-peer (P2P) lending industry has a number of regulatory constraints that foreign investors must be aware of in order to operate in Indonesia lawfully that we shall elaborate on in this article.

Understanding the Current Scenario of P2P Lending Business in Indonesia

Fintech businesses in Indonesia are using a wide range of innovative and linked financial services, particularly in digital marketplaces and peer-to-peer (P2P) financing, to convert financial services into an engine of economic growth.

The OJK (Financial Services Authority, a Government agency,) had 149 P2P lenders registered by December 2020, with total loan disbursements amounting to USD 10.7 billion.

P2P Lending Key Drivers

Middle-incomers and MSME’s Lack Access to Credit

Individuals with lower and moderate per capita expenditures, as well as MSMEs, play a key role in the Indonesian economy because they account for the majority of the population, lacking access to financing services. Fintech lending companies can capitalize on such challenges and assist in expanding much-needed loan availability.

P2P Lending Has a More Dynamic Business Model

Traditional lending institutions are limited in their ability to provide sufficient finance to underserved markets. This opens the door for Fintech innovation to deliver alternative solutions by combining various business models, technology, and novel techniques. As a result, they will be able to provide more coverage in rural places, as well as overcome infrastructural and risk management issues that financial institutions generally encounter when servicing underserved groups.

Evolving P2P Lending Sector in Indonesia

The extent of regulatory participation, business model milestones, and important investments are key factors that are considered while analyzing the progress of the Fintech Lending industry. Presently participants have a clearer code of conduct, the government has a better understanding of how to license lawful players, and investors have more confidence in investing in or acquiring fintech lending companies.

The Indonesian Government is Combating Illegal Online Lenders

The government has indicated that it will make efforts to eliminate and prosecute illicit internet lending practices that harm individuals. OJK has a joint decree, a cooperative agreement, with the Chief of the Indonesian National Police (Polri), the Ministry of Communications and Informatics, the Governor of the Central Bank Bank Indonesia, and the Minister of Cooperatives and MSMEs to minimize the existence of all unlawful internet lending organizations. The government seeks to shut down such platforms, and legal action will be conducted regardless of whether the platforms are cooperative, payment-based, or peer-to-peer lending.

It is critical to comply with the regulatory standards for Indonesian P2P lending enterprises as the government works to remove and prosecute illicit online lending.

P2P Lending Indonesia: How to Conduct the Business Legally

Who Can Conduct P2P Lending Business in Indonesia?

  • Information Technology-Based Lending and Borrowing Service Providers.
  • Service Users like Lenders and Borrowers.
  • Borrowers with debts due to an Information Technology-Based Lending and Borrowing Service agreement.
  • Lenders that have receivables due to an Information Technology-Based Lending and Borrowing Service agreement.

A Step-by-Step Guide to Conduct P2P Business in Indonesia Legally

Form a Legal Entity

The peer-to-peer loan provider is classified as an Other Financial Services Institution under Article 2 POJK No. 77/2016 and is a legal entity in the form of a Limited Liability Company (“Perseroan Terbatas/PT”). This PT can be founded and held by Indonesian citizens/legal entities as well as foreign citizens/legal entities.

POJK restricts the types of service sectors that can be provided by legal entities in cooperative forms to only cooperatives.

Foreign Ownership

Article 3 POJK No. 77/2016, which applies to providers in the form of PT, stipulates that foreign persons and/or foreign legal organizations may own up to 85% of the provider’s shares directly or indirectly.

Meet the Required Capital

At the time of registration, either PT or cooperatives must have at least one billion rupiahs in paid-up capital or owned capital.

Moreover, when applying for permission, PT and the Cooperative have to boost their paid-up capital, or owned capital, to at least IDR 2,5  million rupiahs.

Obtain Recommendation from Joint Funding Fintech Association

Aside from meeting the above requirements, each Fintech Lending provider candidate must first obtain a recommendation from AFPI, Indonesian Joint Funding Fintech Association, to register as a provider in OJK to become a partner in carrying out the regulatory and supervisory functions of the Peer to Peer Lending provider.

Obtain PSE Certificate

The Financial Services Authority (OJK) published OJK Regulation Number 16/POJK.04/2021 to change the requirements for a PSE certificate to register with the ministry in charge of government communications and informatics.

To assist you to become a legal P2P lender, Cekindo will provide you with a seamless company registration experience. Our consultants can further assist you with the acquisition of business licenses with the least delay.

Moreover, if you want to analyze sectors and know more than what the stats say before investing in Indonesia, Cekindo’s market research and due diligence team can assist you to review your possible investments.

Pandu Biasramadhan

Senior Consulting Manager at InCorp Indonesia

An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

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