Financial Services Authority Regulation Number 41 of 2024 on Microfinance Institutions

Regulation of the Financial Services Authority 41 of 2024 concerning Microfinance Institutions

Abstract: To support the development of the industry and legal needs for the microfinance institution industry as regulated in the Financial Services Authority Regulation Number 10/POJK.05/2021 concerning Business Licensing and Institutional Structure of Microfinance Institutions, the Financial Services Authority Regulation Number 19/POJK.05/2021 concerning the Conduct of Business by Microfinance Institutions, and the Financial Services Authority Regulation Number 14/POJK.05/2014 concerning Guidance and Supervision of Microfinance Institutions, it is necessary to establish a Financial Services Authority Regulation concerning microfinance institutions.

The legal basis for this Financial Services Authority Regulation (POJK) is: Law Number 21 of 2011 as amended by Law Number 4 of 2023; Law Number 1 of 2013 as amended by Law Number 4 of 2023; and Law Number 4 of 2023.

The Financial Services Authority Regulation concerning Microfinance Institutions regulates the legal entity form, ownership of MFIs, names and capital of MFIs, business licensing of MFIs including Incubated MFIs, obligations to conduct business activities, conversion of MFIs, human resources, assessment of competence and propriety, branch offices, changes in business scope, transformation of MFIs, institutional changes, mergers and consolidations, associations, revocation of business licenses and dissolution of MFIs, MFI activities, prohibitions, funding sources, agreements used in business activities and funding sources based on Sharia principles, MFI Health Levels, placement of excess funds, procedures for obtaining information about depositors and savings at MFIs, financial reports, business plans, consumer and public protection, anti-fraud strategies, implementation of AML CFT and PPTSP, guidance and supervision of MFIs, MFI examinations, determination of supervision status, and reports on guidance and supervision of MFIs.

Ownership of MFIs by Local Governments: a. MFI ownership is expanded to include district/city local governments and provincial local governments. b. At least 60% (sixty percent) of the shares of the limited liability company (Perseroan Terbatas) MFI must be owned by district/city local governments, provincial local governments, and/or village-owned enterprises.

Incubated MFIs may apply for a business license as an MFI by submitting a business license application to the Financial Services Authority.

MFI business scales are divided into three categories: small, medium, and large.

MFIs conducting conventional business activities that convert to MFIs conducting business based on Sharia Principles must first obtain a conversion license from the Financial Services Authority.

Loan Quality Assessment and Loan Write-off Provisions are determined based on the accuracy of principal and/or interest/yield payments.

MFIs are required to assess the quality of Loans or Financing disbursed into 5 (five) groups, namely: performing, special attention, substandard, doubtful, and/or loss.

MFIs are required to maintain and/or increase their health level to at least composite rating 3.

MFIs are prohibited from placing their excess funds except in:

1. savings accounts at banks;
2. checking accounts at banks;
3. time deposits at banks;
4. certificates of deposit at banks;
5. securities issued by the Republic of Indonesia and Bank Indonesia; and/or
6. deposits at secondary cooperatives.

Submission of MFI Financial Reports: a) The obligation to submit MFI financial reports, differentiated by business scale, is as follows:

1. Quarterly for small-scale MFIs to the district/city local government, with a copy to the Financial Services Authority;
2. Monthly for medium and large-scale MFIs to the Financial Services Authority. b) The obligation to submit audited financial reports for medium and large-scale MFIs with total assets above IDR 7.5 Billion and conducting public fund collection in the form of Savings is no later than 5 (five) months after the end of the fiscal year.

Guidance and Supervision of MFIs: a) Supervision of small-scale MFIs is conducted by the District/City Local Government; b) Supervision of large and medium-scale MFIs is conducted by the Financial Services Authority; c) If necessary, the Financial Services Authority may conduct examinations of small-scale MFIs, taking into account the authority held by the district/city local government.

Note: This Financial Services Authority Regulation takes effect on the date of promulgation. This Financial Services Authority Regulation was promulgated on December 27, 2024, and established on December 24, 2024. Upon the effective date of this Financial Services Authority Regulation, the implementation provisions of Financial Services Authority Regulation Number 19/POJK.05/2021 concerning the Conduct of Business by Microfinance Institutions remain in force insofar as they do not conflict with this Financial Services Authority Regulation. Upon the effective date of this Financial Services Authority Regulation, provisions regarding interest rates on Loans and yields on Financing are subject to this Financial Services Authority Regulation. Upon the effective date of this Financial Services Authority Regulation:

1. Financial Services Authority Regulation Number 14/POJK.05/2014 concerning Guidance and Supervision of Microfinance Institutions;
2. Financial Services Authority Regulation Number 10/POJK.05/2021 concerning Business Licensing and Institutional Structure of Microfinance Institutions; and
3. Financial Services Authority Regulation Number 19/POJK.05/2021 concerning the Conduct of Business by Microfinance Institutions, are repealed and declared invalid.