Change of Business Activities of Rural Banks to Sharia Rural Banks

To:
Directors of Rural Banks (BPR),
At your place.

COPY

CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY REPUBLIC OF INDONESIA NUMBER 7 /SEOJK.03/2023

CONCERNING
CHANGE OF BUSINESS ACTIVITIES OF RURAL BANKS TO SHARIA RURAL BANKS

In view of the implementation of Financial Services Authority Regulation Number 64/POJK.03/2016 concerning the Change of Business Activities of Conventional Banks to Sharia Banks (State Gazette of the Republic of Indonesia Year 2016 Number 295, Supplement to the State Gazette of the Republic of Indonesia Number 5985), as well as in order to align with the latest regulations and to improve efficiency and effectiveness in the licensing process for the change of business activities of Rural Banks (BPR) to Sharia Rural Banks (BPRS), it is necessary to regulate provisions regarding the change of business activities of Rural Banks (BPR) to Sharia Rural Banks (BPRS) in this Circular Letter of the Financial Services Authority as follows:

I. GENERAL PROVISIONS

In this Circular Letter of the Financial Services Authority, the following terms are defined as:

1. Rural Bank (BPR), hereinafter abbreviated as BPR, is a bank that conducts business activities on a conventional basis or based on Sharia principles, which in its activities does not provide services in giro circulation directly.

2. Sharia Rural Bank (BPRS), hereinafter abbreviated as BPRS, is a Sharia bank that in its activities does not provide services in giro circulation directly.

3. Controlling Shareholder (PSP), hereinafter abbreviated as PSP, is a legal entity, individual, and/or business group that holds shares of a company or bank amounting to 25% (twenty-five percent) or more of the issued shares and has voting rights, or holds shares of a company or bank less than 25% (twenty-five percent) of the issued shares and has voting rights but can be proven to have controlled the company or bank, directly or indirectly.

4. Sharia Supervisory Board (DPS), hereinafter abbreviated as DPS, is a board tasked with providing advice and suggestions to the Board of Directors and supervising Sharia bank activities to ensure compliance with Sharia principles.

II. REQUIREMENTS FOR APPLICATION FOR CHANGE OF BUSINESS ACTIVITIES LICENSE

1. A BPR intending to change its business activities to a BPRS must already have the same legal entity form as the BPRS resulting from the change of business activities.

2. A BPR intending to change its business activities to a BPRS must have met the capital requirements as regulated in the Financial Services Authority regulations regarding the minimum capital provision obligation and minimum core capital fulfillment for rural banks.

3. The prospective Controlling Shareholder (PSP) of the BPRS resulting from the change of business activities, which is the PSP of the BPR intending to change its business activities, must undergo a fit and proper assessment through administrative evaluation including:
   a. submission of documents in the form of a statement letter regarding the commitment to develop Sharia banking; and b. presentation/presentation.
   In the event that the prospective Controlling Shareholder (PSP) of the BPRS resulting from the change of business activities, which is the PSP of the BPR intending to change its business activities, is the central government or local government, the presentation/presentation is conducted if deemed necessary.

4. The prospective members of the Board of Directors and members of the Board of Commissioners of the BPRS resulting from the change of business activities, who are members of the Board of Directors and members of the Board of Commissioners of the BPR intending to change its business activities, may not undergo clarification in the fit and proper assessment if there is no negative data or information obtained by the Financial Services Authority.

5. BPR products may remain valid in the BPRS resulting from the change of business activities as long as they have been adjusted to the product codification and BPRS activities in accordance with the Financial Services Authority regulations regarding products and activities of Sharia rural banks.

III. DOCUMENTS FOR APPLICATION FOR CHANGE OF BUSINESS ACTIVITIES LICENSE

The application for a change of business activities license is submitted by the BPR using the letter format contained in Appendix I and accompanied by the following documents:

1. Draft deed of amendment of the Articles of Association which at least contains:
   a. name and domicile; b. confirmation that the bank conducts BPRS business activities;
   c. capital, in case of changes;
   d. ownership, in case of changes; e. provisions regarding the appointment of members of the Board of Directors, members of the Board of Commissioners, and members of the DPS which must obtain prior approval from the Financial Services Authority; f. provisions regarding the number, authority, responsibility, duties, and other requirements for the Board of Directors, Board of Commissioners, and DPS in accordance with applicable legislation; and g. provisions regarding the General Meeting of Shareholders (GMS) which stipulate that the duties of management, remuneration of the Board of Directors and Board of Commissioners, annual accountability reports, appointment and public accountant service fees, profit utilization, and other matters in accordance with applicable legislation.

   The draft deed of amendment of the Articles of Association may request approval from the competent authority simultaneously with the application for a change of business activities license to the Financial Services Authority. The deed of amendment of the Articles of Association approved by the competent authority, along with other documents related to the change of business activities licensing process, is submitted to the Financial Services Authority no later than simultaneously with the submission of the report on the implementation of the change of business activities.

2. Minutes of the General Meeting of Shareholders (GMS).

3. List of prospective members of the Board of Directors and members of the Board of Commissioners of the BPRS resulting from the change of business activities.
   For new prospective members of the Board of Directors and members of the Board of Commissioners, accompanied by documents in accordance with Financial Services Authority regulations regarding the fit and proper assessment for prospective Controlling Shareholders, prospective members of the Board of Directors, and prospective members of the Board of Commissioners of banks applicable to BPRS. For prospective members of the Board of Directors and members of the Board of Commissioners who are members of the Board of Directors and members of the Board of Commissioners of the BPR intending to change its business activities, accompanied by documents including:
   a. photocopy of identity documents in the form of Identity Card (KTP); b. questionnaire contained in Appendix XVI.C – Questionnaire for Prospective Members of the Board of Commissioners and Board of Directors of BPRS in accordance with the Financial Services Authority Circular Letter regarding the Fit and Proper Assessment for Prospective Controlling Shareholders, Prospective Members of the Board of Directors, and Prospective Members of the Board of Commissioners of Banks;
   c. Sharia banking training certificate; and
   d. statement letter of support for the development of Sharia banking.

4. List of prospective members of the DPS of the BPRS resulting from the change of business activities, accompanied by documents:
   a. recent 4 x 6 cm photo; b. photocopy of identity documents in the form of Identity Card (KTP);
   c. curriculum vitae, with example format contained in Appendix XVII – Curriculum Vitae in accordance with the Financial Services Authority Circular Letter regarding the Fit and Proper Assessment for Prospective Controlling Shareholders, Prospective Members of the Board of Directors, and Prospective Members of the Board of Commissioners of Banks;
   d. stamped statement letter stating that the person concerned:
   1) has never been sentenced for proven criminal acts consisting of:
   a) criminal acts in the financial services sector whose sentence has been fully served within the last 20 (twenty) years before nomination; b) criminal acts, namely criminal acts contained in the Criminal Code (KUHP) and/or similar to the KUHP abroad with a prison sentence threat of 1 (one) year or more whose sentence has been fully served within the last 10 (ten) years before nomination; and/or c) other criminal acts with a prison sentence threat of 1 (one) year or more, including corruption, money laundering, narcotics/psychotropics, smuggling, customs, excise, human trafficking, illegal arms trade, terrorism, counterfeiting money, in the field of taxation, in the field of forestry, in the field of environmental protection, in the field of marine and fisheries, whose sentence has been fully served within the last 20 (twenty) years before nomination;
   2) is committed to complying with applicable legislation, particularly in the field of banking and Sharia banking, and supporting the policies of the Financial Services Authority;
   3) is not currently prohibited from becoming a Principal Party, which among others is not listed in the Unfit List (DTL);
   4) does not have non-performing loans and/or financing;
   5) has never been declared bankrupt and/or has never been a shareholder, controller, member of the Board of Directors, or member of the Board of Commissioners who was declared guilty causing a company to be declared bankrupt within the last 5 (five) years before nomination;
   6) will not violate applicable regulations regarding dual positions;
   e. letter of certificate or certificate from educational and training institutions and/or the National Sharia Board – Indonesian Ulema Council regarding education and/or training in the field of Sharia muamalah and in the field of banking and/or finance in general referring to competency requirements for DPS in accordance with Financial Services Authority regulations regarding rural banks;\ and f. recommendation letter from the National Sharia Board – Indonesian Ulema Council.

5. Statement letter from shareholders that the source of funds used in the ownership of BPRS, in case of additional paid-up capital:
   a. does not come from loans or financing facilities in any form from banks and/or other parties; and/or b. does not come from and is not for the purpose of money laundering.
   In the event that the prospective shareholder of BPRS is a legal entity, the statement letter is signed by the authorized management representing the respective legal entity.

6. Organizational structure plan and names of executive officials.

7. Feasibility study of the change of business activities of BPR to BPRS including:
   a. potential aspects, at least market opportunities and Sharia economic potential to be targeted by the BPRS; b. feasibility aspects, at least:
   1) BPRS development business strategy;
   2) BPRS capital and finance, BPRS financial and capital conditions reflect a healthy and sustainably growing bank shown by performance projections from the initial issuance of the change of business activities license until 3 (three) years into the future; and
   3) mapping of BPR customers to see the percentage of BPR customers willing and BPR customers unwilling to change BPR business activities to BPRS so as to affect the preparation of financial report projections and risks faced by the BPRS. The mapping performed can use statistical approaches, including surveys of a number of BPR customers (samples) that can reflect the portfolio population; and
   c. conclusion of the feasibility of the change of business activities of BPR to BPRS.

8. Business plan containing at least:
   a. business activity plans covering fund mobilization and distribution and achievement strategies; and b. monthly financial position reports and cumulative monthly profit and loss reports for 12 (twelve) months starting from when the BPRS operates.

9. Initial financial reports as a BPRS showing that the current year profit and loss and last year's profit and loss have a balance of Rp0.00 (zero rupiah) or nil.

10. Corporate plan in the form of long-term strategic plans to achieve the vision and mission of the BPRS.

11. Complete and comprehensive work systems and procedures used in BPRS operational activities.

12. Plan to settle all rights and obligations of the BPR towards customers who are unwilling to become BPRS customers.

13. Proof of operational readiness at least in the form of:
    a. readiness of office buildings and equipment including photos of office buildings and room layouts; b. documents showing the readiness of information system technology including among others core banking systems and information regarding telecommunications networks;
    c. proof of ownership or documents controlling office buildings including among others proof of land rights or lease agreements; and
    d. example forms or documents to be used for BPRS operations.

14. BPRS office network plan in accordance with Financial Services Authority regulations regarding Sharia rural banks, accompanied by information regarding office locations.

IV. IMPLEMENTATION OF CHANGE OF BUSINESS ACTIVITIES

The report on the implementation of the change of business activities is submitted using the letter format contained in Appendix II, accompanied by the deed of amendment of the Articles of Association approved by the competent authority and proof of announcement of the implementation of the change of business activities in a local daily newspaper or announcement board at the domicile of the BPR office.

V. SUBMISSION OF APPLICATION REQUIREMENTS FOR CHANGE OF BUSINESS ACTIVITIES LICENSE AND REPORTING ON THE IMPLEMENTATION OF CHANGE OF BUSINESS ACTIVITIES TO THE FINANCIAL SERVICES AUTHORITY

1. The application for a change of business activities license is submitted to the Financial Services Authority online through the Financial Services Authority licensing system.
   In the event of force majeure and/or the system is not yet available, the license application is submitted to the Financial Services Authority at the address of the work unit having the BPR licensing function, with a copy to the relevant Regional Office/Office of the OJK and the work unit having the BPR licensing function.

2. The Financial Services Authority submits a decision on the application for a change of business activities license no later than 60 (sixty) working days since the application documents for the change of business activities license are declared complete.

3. The report on the implementation of the change of business activities is submitted to the Financial Services Authority online through the Financial Services Authority reporting system.
   In the event of force majeure and/or the system is not yet available, the report on the implementation of the change of business activities is submitted to the Financial Services Authority at the address of the relevant Regional Office/Office of the OJK, with a copy to the work unit having the BPR licensing function and the work unit having the BPRS licensing function.

VI. TRANSITIONAL OPERATIONAL PERIOD OF BPR TO BPRS

1. A BPR that has obtained a license for the change of business activities to a BPRS and has not yet declared operation as a Sharia bank:
   This copy is consistent with the original
   Legal Director 1
   Legal Department signed
   Mufli Asmawidjaja a. may convert third-party funds deposits and credits to be based on Sharia principles for old customers; b. may place funds at Bank Indonesia, other banks, and securities based on Sharia principles;
   c. may conduct business activities based on Sharia principles; and
   d. regarding assets, liabilities, income, and profit-sharing on transactions conducted by the BPRS are reported according to their characteristics in the BPR report.

2. A BPR that has obtained a license for the change of business activities to a BPRS and has declared operation as a Sharia bank:
   a. conducts business activities based on Sharia principles; and b. is prohibited from conducting conventional business activities except for the settlement of rights and obligations of old customers.

VII. CLOSING

1. At the time this Circular Letter of the Financial Services Authority comes into force, the Circular Letter of the Financial Services Authority Number 3/SEOJK.03/2017 concerning the Change of Business Activities of Rural Credit Banks to Sharia Rural Credit Financing Banks is repealed and declared invalid.

2. Provisions in this Circular Letter of the Financial Services Authority come into force on the date of determination.

Determined in Jakarta on 21 February 2023
EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA, signed
DIAN EDIANA RAE

APPENDIX I
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY REPUBLIC OF INDONESIA NUMBER 7 /SEOJK.03/2023 CONCERNING CHANGE OF BUSINESS ACTIVITIES OF RURAL BANKS TO SHARIA RURAL BANKS

Number: ………………… (Place), (Date, Month, Year)
Attachment: …………………
To
Directorate of Sharia Banking Regulation and Licensing Financial Services Authority Subject: Application for License for Change of Business Activities of BPR to BPRS Assalamu’alaikum warahmatullahi wabarakatuh

Hereby we apply for a license for the change of business activities from ……… (name of BPR) to ……… (name of BPRS) which is domiciled at ……….
To complete the aforementioned application, we submit:

1. draft deed of amendment of the Articles of Association;
2. minutes of the General Meeting of Shareholders;
3. list of prospective members of the Board of Directors and members of the Board of Commissioners;
4. list of prospective members of the Sharia Supervisory Board;
5. statement letter from shareholders;
6. organizational structure plan and names of Executive Officials;
7. feasibility study;
8. business plan;
9. initial financial report as a Sharia Rural Bank;
10. corporate plan;
11. work systems and procedures;
12. plan to settle all rights and obligations of the Rural Bank towards customers who are unwilling to become Sharia Rural Bank customers;
13. proof of operational readiness; and
14. Sharia Rural Bank office network plan along with information regarding office locations.
    If there are questions or other matters related to this application letter, you may contact our employee namely ……… via telephone ……… or email ………

This copy is consistent with the original
Legal Director 1
Legal Department signed
Mufli Asmawidjaja

Thus, this application is submitted, thank you for your attention.
Wassalamu’alaikum warahmatullahi wabarakatuh
BPR DIRECTORATE
Copy to: 1)

1. Relevant Regional Office/Office of the OJK and work units having the BPR licensing function.
   Determined in Jakarta on 21 February 2023
   EXECUTIVE HEAD OF BANKING SUPERVISOR
   FINANCIAL SERVICES AUTHORITY
   REPUBLIC OF INDONESIA, signed
   DIAN EDIANA RAE

APPENDIX II
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY REPUBLIC OF INDONESIA NUMBER 7 /SEOJK.03/2023 CONCERNING CHANGE OF BUSINESS ACTIVITIES OF RURAL BANKS TO SHARIA RURAL BANKS

Number: ………………… (Place), (Date, Month, Year)
Attachment: …………………
To
Regional Office/Office of the Financial Services Authority 1) Subject: Report on Implementation of Change of Business Activities of BPR to BPRS Assalamu’alaikum warahmatullahi wabarakatuh

Referring to the copy of the Decision Letter of the Financial Services Authority Commissioners Number ……… dated ……… concerning the Granting of License for Change of Business Activities of Rural Bank ……… (name of BPR) to Sharia Rural Bank ……… (name of BPRS), hereby reported that we have started business activities based on Sharia principles on date ……… Attached are the deed of amendment of the Articles of Association approved by the competent authority and proof of announcement in a local daily newspaper or announcement board at the domicile of the BPR office. Thus, please be informed. Wassalamu’alaikum warahmatullahi wabarakatuh BPRS DIRECTORATE Copy to: 2)

1. Adjusted to the work unit having the BPRS supervision function.
2. Work units having the BPR licensing function and work units having the BPRS licensing function.

This copy is consistent with the original
Legal Director 1
Legal Department signed
Mufli Asmawidjaja
Determined in Jakarta on 21 February 2023
EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA, signed
DIAN EDIANA RAE