Financial Services Authority Circular No. 48/SEOJK.05/2016 on the Amount of Down Payment (Down Payment/Urbun) for Motor Vehicle Financing for Sharia Financing

To:

1. The Board of Directors of Sharia Financing Companies; and
2. The Board of Directors of Financing Companies with Sharia Business Units,
   At their respective locations.

COPY

CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 48 /SEOJK.05/2016

ON

THE AMOUNT OF DOWN PAYMENT (DOWN PAYMENT/URBUN) FOR MOTOR VEHICLE FINANCING FOR SHARIA FINANCING

In accordance with the mandate of Article 12 paragraph (3) of the Financial Services Authority Regulation Number 31/POJK.05/2014 concerning the Conduct of Sharia Financing Business (State Gazette of the Republic of Indonesia Year 2014 Number 366, Supplement to the State Gazette of the Republic of Indonesia Number 5640) and in order to encourage the growth of the financing industry, it is necessary to refine the regulations regarding the amount of down payment (down payment/urbun) for motor vehicle financing for Sharia financing in the Financial Services Authority Circular Letter as follows:

I. GENERAL PROVISIONS

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

1. Financing Company is a business entity that conducts financing activities for the procurement of goods and/or services.

2. Sharia Financing Company is a Financing Company whose entire business activities conduct Sharia financing.

3. Sharia Financing is the disbursement of financing conducted based on Sharia principles.

4. Sharia Principles are Islamic legal provisions based on fatwas and/or Sharia conformity statements from the National Sharia Board of the Indonesian Ulema Council.

5. Sharia Business Unit, hereinafter abbreviated as UUS, is a working unit of the head office of a Financing Company functioning as the parent office of offices conducting Sharia Financing.

6. Sharia Company refers to Sharia Financing Companies and UUS.

7. Sales Financing is financing in the form of providing goods through sales transactions in accordance with Sharia financing agreements agreed upon by the parties.

8. Sharia Financing Agreement is a written agreement between a Sharia Company and other parties containing the rights and obligations of each party in accordance with Sharia Principles.

9. Down Payment (Down Payment/Urbun) for Motor Vehicle Financing is an upfront or cash down payment where the source of funds comes from the consumer (self-financing) in the context of Sales Financing for motor vehicles.

10. Consumer is a company or individual who enters into a Sharia Financing Agreement with a Sharia Company related to the business activities of the Sharia Company.

11. Problematic Productive Asset is a productive asset with poor, doubtful, and/or non-performing quality regarding Sales Financing for motor vehicles, after considering provisions for the write-off of productive assets.

12. Problematic Productive Asset Ratio is the ratio between Problematic Productive Assets and total productive assets regarding Sales Financing for motor vehicles.

II. AMOUNT OF DOWN PAYMENT (DOWN PAYMENT/URBUN) FOR MOTOR VEHICLE FINANCING FOR SHARIA COMPANIES

1. Sharia Companies with a Problematic Productive Asset Ratio lower than or equal to 1% (one percent) are required to apply the down payment (Down Payment/Urbun) requirements for Motor Vehicle Financing to Consumers, with the following provisions:

a. for two- or three-wheeled motor vehicles, at least 5% (five percent) of the selling price of the relevant vehicle;

b. for four-wheeled or more motor vehicles used for productive purposes, at least 5% (five percent) of the selling price of the relevant vehicle; or
c. for four-wheeled or more motor vehicles used for non-productive purposes, at least 5% (five percent) of the selling price of the relevant vehicle.

2. Sharia Companies with a Problematic Productive Asset Ratio higher than 1% (one percent) and lower than or equal to 3% (three percent) are required to apply the down payment (Down Payment/Urbun) requirements for Motor Vehicle Financing to Consumers, with the following provisions:

a. for two- or three-wheeled motor vehicles, at least 5% (five percent) of the selling price of the relevant vehicle; b. for four-wheeled or more motor vehicles used for productive purposes, at least 5% (five percent) of the selling price of the relevant vehicle; or
c. for four-wheeled or more motor vehicles used for non-productive purposes, at least 10% (ten percent) of the selling price of the relevant vehicle.

3. Sharia Companies with a Problematic Productive Asset Ratio higher than 3% (three percent) and lower than or equal to 5% (five percent) are required to apply the down payment (Down Payment/Urbun) requirements for Motor Vehicle Financing to Consumers, with the following provisions:

a. for two- or three-wheeled motor vehicles, at least 10% (ten percent) of the selling price of the relevant vehicle; b. for four-wheeled or more motor vehicles used for productive purposes, at least 10% (ten percent) of the selling price of the relevant vehicle; or
c. for four-wheeled or more motor vehicles used for non-productive purposes, at least 15% (fifteen percent) of the selling price of the relevant vehicle.

4. Sharia Companies with a Problematic Productive Asset Ratio higher than 5% (five percent) are required to apply the down payment (Down Payment/Urbun) requirements for Motor Vehicle Financing to Consumers, with the following provisions:

a. for two- or three-wheeled motor vehicles, at least 15% (fifteen percent) of the selling price of the relevant vehicle; b. for four-wheeled or more motor vehicles used for productive purposes, at least 20% (twenty percent) of the selling price of the relevant vehicle; or
c. for four-wheeled or more motor vehicles used for non-productive purposes, at least 25% (twenty-five percent) of the selling price of the relevant vehicle.

5. Motor vehicle financing provided by Sharia Companies to Consumers as part of a motor vehicle ownership program (car ownership program) with other corporations is not required to apply the down payment (Down Payment/Urbun) requirements for Motor Vehicle Financing to Consumers as regulated in items 1 through 4.

6. The motor vehicle ownership program (car ownership program) as referred to in item 5 must be stipulated in a cooperation agreement between the Sharia Company and the other corporation that can provide certainty of the collectability of the Sharia Financing receivables that have been granted.

7. The certainty of collectability of the Sharia Financing receivables that have been granted as referred to in item 6 may include:

a. installment payments through a salary deduction mechanism from the employees of the relevant corporation; and b. guarantees on the Sharia Financing receivables.

8. The guarantee on Sharia Financing receivables as referred to in item 7 letter b refers to:

a. Sharia guarantees as referred to in Article 13 paragraph (2) letter a of the Financial Services Authority Regulation Number 31/POJK.05/2014 concerning the Conduct of Sharia Financing Business; and/or b. guarantees on Sharia Financing receivables from the relevant corporation.

III. IMPLEMENTATION PERIOD OF DOWN PAYMENT (DOWN PAYMENT/URBUN) FOR MOTOR VEHICLE FINANCING

1. The implementation of the down payment (Down Payment/Urbun) requirements for Motor Vehicle Financing as referred to in Roman numeral II is calculated based on monthly reports as of June 30 and December 31.

2. The implementation of the down payment (Down Payment/Urbun) requirements for Motor Vehicle Financing as referred to in Roman numeral II takes effect on August 1 or February 1 for the following 6 (six) months.

Example:
If based on the monthly report of a Sharia Company as of June 30, 2017, the Sharia Company has a Problematic Productive Asset Ratio higher than 5% (five percent), then that Sharia Company applies the down payment (Down Payment/Urbun) requirements for Motor Vehicle Financing as referred to in Roman numeral II item 4. The implementation of the down payment (Down Payment/Urbun) requirements for Motor Vehicle Financing takes effect starting August 1, 2017, until January 31, 2018.

If based on the monthly report of a Sharia Company as of December 31, 2017, the Sharia Company has a Problematic Productive Asset Ratio of 4.5% (four point five percent), then that Sharia Company applies the down payment (Down Payment/Urbun) requirements for Motor Vehicle Financing as referred to in Roman numeral II item 3. The implementation of the down payment (Down Payment/Urbun) requirements for Motor Vehicle Financing takes effect starting February 1, 2018, until July 31, 2018.

If based on the monthly report of a Sharia Company as of June 30, 2018, the Sharia Company has a Problematic Productive Asset Ratio of 1.5% (one point five percent), then that Sharia Company applies the down payment (Down Payment/Urbun) requirements for Motor Vehicle Financing as referred to in Roman numeral II item 2. The implementation of the down payment (Down Payment/Urbun) requirements for Motor Vehicle Financing takes effect starting August 1, 2018, until January 31, 2019.

IV. PROCEDURE FOR CALCULATING THE AMOUNT OF DOWN PAYMENT (DOWN PAYMENT/URBUN) FOR MOTOR VEHICLE FINANCING

1. The calculation of the down payment (Down Payment/Urbun) requirements for Motor Vehicle Financing as referred to in Roman numeral II is performed on the selling price of the vehicle after deducting price discounts (discount) and other deductions.

Example:
Vehicle Price: Rp10,000,000.00
Price discounts (discount) and other deductions given: Rp500,000.00 Selling Price of Vehicle: Rp10,000,000.00 – Rp500,000.00 = Rp9,500,000.00 For Financing Companies meeting the criteria as referred to in Roman numeral II item 3, the Down Payment (Down Payment/Urbun) for Motor Vehicle Financing that must be charged and paid in cash at once is 10% x Rp9,500,000.00 = Rp950,000.00.

2. The calculation of the down payment (Down Payment/Urbun) requirements for Motor Vehicle Financing as referred to in Roman numeral II does not include the first installment, survey costs, commissions, insurance, guarantees, fiduciary fees, notary fees, or other costs.

Example 1 (Insurance, guarantee, or other costs paid in cash by the Consumer):
Vehicle Price: Rp10,000,000.00
Price discounts (discount) and other deductions given: Rp500,000.00 Insurance, guarantee, or other costs paid by the Consumer in cash: Rp1,000,000.00 Selling Price of Vehicle: Rp10,000,000.00 – Rp500,000.00 = Rp9,500,000.00 For Financing Companies meeting the criteria as referred to in Roman numeral II item 3, the Down Payment (Down Payment/Urbun) for Motor Vehicle Financing that must be charged and paid in cash at once is 10% x Rp9,500,000.00 = Rp950,000.00.

Costs paid by the Consumer in cash at once (if insurance, guarantee, or other costs are paid in cash by the Consumer) = down payment (Rp950,000.00) + insurance, guarantee, or other costs (Rp1,000,000.00) = Rp1,950,000.00. Total financing by the Financing Company to the Consumer = selling price of vehicle (Rp9,500,000.00) – down payment (Rp950,000.00) = Rp8,550,000.00.

Example 2 (Insurance, guarantee, or other costs are not paid in cash (installment) by the Consumer):
Vehicle Price: Rp10,000,000.00
Price discounts (discount) and other deductions given: Rp500,000.00 Insurance, guarantee, or other costs: Rp1,000,000.00 Selling Price of Vehicle: Rp10,000,000.00 – Rp500,000.00 = Rp9,500,000.00 Down Payment (Down Payment/Urbun) for Motor Vehicle Financing that must be charged is 10% x Rp9,500,000.00 = Rp950,000.00. Thus, the costs paid by the Consumer when insurance/guarantee or other costs are not paid in cash by the Consumer or are paid in installments = down payment (Rp950,000.00). Total Financing by the Financing Company to the Consumer = insurance/guarantee or other costs (Rp1,000,000.00) + vehicle financing price (Rp8,550,000.00) = Rp9,550,000.00.

3. Incentive costs provided by Sharia Companies to third parties related to the acquisition of Sharia Financing cannot be calculated in the calculation of the down payment (Down Payment/Urbun) requirements for Motor Vehicle Financing as referred to in Roman numeral II.

V. COMPLIANCE ENFORCEMENT AND SANCTIONS

Sharia Companies that do not meet the down payment (Down Payment/Urbun) requirements for Motor Vehicle Financing as referred to in this Financial Services Authority Circular Letter are subject to the provisions as referred to in Article 55 and Article 57 of the Financial Services Authority Regulation Number 31/POJK.05/2014 concerning the Conduct of Sharia Financing Business.

VI. CLOSING

1. The provisions in this Financial Services Authority Circular Letter take effect on the date of determination.

2. With the determination of this Financial Services Authority Circular Letter, the Financial Services Authority Circular Letter Number 20/SEOJK.05/2015 concerning the Amount of Down Payment (Down Payment/Urbun) for Motor Vehicle Financing for Sharia Financing is repealed and declared invalid.

Determined in Jakarta on December 13, 2016

EXECUTIVE HEAD OF INSURANCE, PENSION FUND,
FINANCING INSTITUTION, AND
OTHER FINANCIAL SERVICES INSTITUTIONS
FINANCIAL SERVICES AUTHORITY, signed
FIRDAUS DJAELANI

Copy in accordance with the original
Legal Director 1
Legal Department signed
Yuliana