Financial Services Authority Regulation Number 14/POJK.05/2014 Concerning the Guidance and Supervision of Microfinance Institutions

FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA
COPY
FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 14 /POJK.05/2014
CONCERNING
GUIDANCE AND SUPERVISION OF MICROFINANCE INSTITUTIONS BY THE GRACE OF GOD THE ALMIGHTY THE BOARD OF COMMISSIONERS OF THE FINANCIAL SERVICES AUTHORITY, Considering: that in order to implement the provisions of Article 28 and Article 31 of Law Number 1 of 2013 concerning Microfinance Institutions, it is necessary to establish a Financial Services Authority Regulation concerning the Guidance and Supervision of Microfinance Institutions; Recalling: 1. Law Number 21 of 2011 concerning the Financial Services Authority (State Gazette of the Republic of Indonesia Year 2011 Number 111, Supplement to the State Gazette of the Republic of Indonesia Number 5253);
2. Law Number 1 of 2013 concerning Microfinance Institutions (State Gazette of the Republic of Indonesia Year 2013 Number 12, Supplement to the State Gazette of the Republic of Indonesia Number 5394);
3. Government Regulation Number 89 of 2014 concerning Loan Interest Rates or Financing Returns and the Scope of Business Operations of Microfinance Institutions) (State Gazette of the Republic of Indonesia Year 2014 Number 321, Supplement to the State Gazette of the Republic of Indonesia Number 5616);
DECIDING:
Establishing: A FINANCIAL SERVICES AUTHORITY REGULATION CONCERNING GUIDANCE AND SUPERVISION OF MICROFINANCE INSTITUTIONS.

CHAPTER I
GENERAL PROVISIONS
Article 1
In this Financial Services Authority Regulation, the following terms are defined as:

1. Microfinance Institutions, hereinafter abbreviated as MFI, are financial institutions specifically established to provide business development services and community empowerment, either through loans or financing in micro-scale businesses to members and the public, managing deposits, or providing business development consulting services, which are not solely profit-oriented.
2. Loan is the provision of funds by the MFI to the public that must be returned as agreed.
3. Financing is the provision of funds by the MFI to the public that must be returned as agreed based on Sharia principles.
4. Deposits are funds entrusted by the public to the MFI in the form of savings and/or time deposits based on a fund storage agreement.
5. Depositor is the party that places its funds with the MFI based on an agreement.
6. Sharia Principles are Islamic legal provisions based on fatwas or statements of Sharia compliance from the National Sharia Board of the Indonesian Ulema Council (DSN MUI).
7. Board of Directors:
   a. for MFIs in the form of a Limited Liability Company (Perseroan Terbatas) are the board of directors as referred to in legislation concerning limited liability companies; b. for MFIs in the form of a Cooperative legal entity are the managers as referred to in legislation concerning cooperatives.
8. Board of Commissioners:
   a. for MFIs in the form of a Limited Liability Company (Perseroan Terbatas) are the board of commissioners as referred to in legislation concerning limited liability companies; b. for MFIs in the form of a Cooperative legal entity are the supervisors as referred to in legislation concerning cooperatives.
9. Inspection is a series of activities to collect, search, process, and evaluate data and information regarding MFI business activities.
10. Inspector is an employee of the Financial Services Authority, an employee of the District/City Regional Government, or another party designated by the Financial Services Authority.
11. Inspection Order is a letter issued by the Financial Services Authority, the District/City Regional Government, or another party designated by the Financial Services Authority, which is used by the Inspector as a basis to conduct an Inspection.
12. Inspection Notification is a letter issued by the Financial Services Authority, the District/City Regional Government, or another party designated by the Financial Services Authority, which is delivered to the MFI to be inspected.
13. Financial Services Authority, hereinafter abbreviated as OJK, is an independent institution free from the interference of other parties that has the function, duties, and authority for regulation, supervision, inspection, and investigation as referred to in the Law concerning the OJK.

CHAPTER II
GUIDANCE AND SUPERVISION
Article 2
(1) Guidance, regulation, and supervision of MFIs are carried out by the OJK.
(2) In carrying out guidance and supervision, the OJK coordinates with the Ministry in charge of cooperative affairs and the Ministry of Home Affairs. (3) Guidance and supervision as referred to in paragraph (1) are delegated to the District/City Regional Government. (4) In the event that the District/City Regional Government is not yet ready, the OJK may delegate the guidance and supervision as referred to in paragraph (1) to another party designated.
Article 3
(1) To be able to carry out the functions and duties of guidance and supervision of MFIs, the District/City Regional Government prepares human resources and infrastructure. (2) Preparation of human resources and infrastructure as referred to in paragraph (1) includes, among others:
a. designating District/City Regional Government employees to carry out the functions and duties of guidance and supervision of MFIs; b. assigning employees designated as referred to in letter a to attend training organized by the OJK; and
c. preparing operational support facilities for supervision.
Article 4
Another party designated as referred to in Article 2 paragraph (4) must at least meet the requirements:
a. Willingness to carry out the duties of guidance and supervision of MFIs in accordance with Law Number 1 of 2013 concerning Microfinance Institutions and its implementing regulations; b. Having knowledge and understanding of MFI operations; and
c. Having adequate infrastructure that can support the implementation of guidance and supervision of MFIs.
Article 5
(1) Guidance and supervision delegated to the District/City Regional Government or another designated party include:
a. Receipt of financial reports and input of data into the application system; b. Implementation of MFI financial report analysis;
c. Receipt and analysis of other reports;
d. Implementation of follow-up on other reports; e. Preparation of inspection work plans, implementation of inspections, and follow-up on MFI inspection results; f. Imposition of administrative sanctions on MFIs other than revocation of business licenses and fines; and g. Implementation of rehabilitation steps for MFIs experiencing liquidity and solvency difficulties that endanger business continuity. (2) Changes to guidance and supervision delegated as referred to in paragraph (1) are further regulated in an OJK Circular Letter.
Article 6
Guidance and supervision of MFIs are implemented in accordance with Law Number 1 of 2013 concerning Microfinance Institutions and its implementing regulations as well as guidelines established by the OJK.
Article 7
Further provisions regarding the procedures for implementing guidance and supervision of MFIs are regulated by a Circular Letter of the Board of Commissioners of the OJK.

CHAPTER III
INSPECTION
Article 8
(1) In the implementation of guidance and supervision functions, the OJK conducts Inspections of MFIs.
(2) Inspections of MFIs as referred to in paragraph (1) are delegated to the local District/City Regional Government in the area where the MFI operates or to another party designated by the OJK. (3) If necessary, the OJK can conduct direct Inspections of MFIs either alone or together with the District/City Regional Government or another designated party. (4) Inspections aim to:
a. obtain assurance regarding the actual condition of the MFI; b. examine the conformity of the MFI's condition with legislation and healthy MFI business practices; and
c. ensure that the MFI has made efforts to fulfill its obligations to customers.
Article 9
(1) Implementation of Inspections of MFIs is based on:
a. analysis results of periodic MFI reports, where it is suspected that the implementation of MFI business activities deviates from legislation in the field of MFIs which can pose risks endangering the continuity of MFI business and/or the interests of Depositors in the distribution of Loans or Financing and the management of Deposits; or b. complaints or reports submitted by the public, where there is a suspicion that the implementation of MFI business activities deviates from applicable regulations concerning MFIs which can cause losses to the public. (2) Inspections as referred to in paragraph (1) include Inspections of the substance of periodic reports and compliance with legislation in the field of MFIs. (3) Inspections as referred to in Article 8 paragraph (3) are conducted in the event of suspicions of the following conditions:
a. misuse of MFI funds by the Board of Directors, Commissioners, or MFI employees; b. liquidity and solvency difficulties leading to conditions endangering MFI business continuity;
c. deviations from Sharia Principles for MFIs conducting business based on Sharia Principles;
d. large outstanding loan or financing repayments that can affect the MFI's financial condition; e. deviations in the form of fictitious Loans or Financing; f. errors in recording and/or accounting calculations resulting in financial losses for the MFI; and/or g. conditions outside the provisions as referred to in letters a through f, which based on OJK's consideration need to be subject to direct Inspection by the OJK against the MFI. (4) In the implementation of MFI inspections as referred to in paragraph (3), the OJK coordinates with the District/City Regional Government or another designated party.
Article 10
(1) Inspections as referred to in Article 8 are carried out by Inspectors based on a task letter or Inspection Order and Inspection Notification. (2) Before the Inspection as referred to in paragraph (1) is conducted, an Inspection Notification must first be delivered to the MFI. (3) The Inspection Notification as referred to in paragraph (2) must be delivered at the latest 3 (three) working days before the date of implementation of the Inspection activity. (4) The prior delivery of the Inspection Notification does not apply in the event that the delivery of such notification letter could cause actions to obscure the actual state or actions to hide data, information, or reports required in the implementation of the Inspection.
Article 11
(1) Inspections as referred to in Article 8 are carried out through the following stages:
a. Inspection preparation; b. Inspection implementation; and
c. Reporting of Inspection results.
(2) Inspection preparation as referred to in paragraph (1) letter a is made based on analysis results of periodic reports and other supporting data. (3) Implementation of Inspections as referred to in paragraph (1) letter b is carried out by conducting Inspections at the MFI's office. (4) To support the implementation of Inspections as referred to in paragraph (1) letter b, confirmation can be conducted with third parties related to the respective MFI. (5) Reporting of Inspection results as referred to in paragraph (1) letter c must be prepared based on data or information obtained during the inspection process, which is documented in Inspection working papers.
Article 12
(1) At the time the Inspection is about to begin, the Inspector is required to show the task letter or Inspection Order.
(2) In the event that the Inspector cannot meet the provisions in paragraph (1), the MFI to be inspected may refuse the Inspection.
Article 13
(1) In the implementation of Inspections, the inspected MFI is required to:
a. accept the Inspection conducted by the Inspector; b. fulfill the Inspector's request to provide or lend books, notes, and documents necessary for the smoothness of the Inspection;
c. provide necessary information in writing and/or orally; and
d. provide access to the Inspector to enter places or rooms deemed necessary.
(2) An MFI is considered to be hindering the smoothness of the Inspection process if it does not fulfill the obligations as referred to in paragraph (1). (3) Inspectors are required to keep data and/or information obtained during the Inspection confidential from unauthorized parties.
Article 14
(1) Inspectors are required to discuss the results of the Inspection with the MFI before the Inspection ends.
(2) The results of the discussion as referred to in paragraph (1) are signed by the Inspector and the MFI as a basis for preparing the Inspection results report. (3) The Inspection results report as referred to in paragraph (2) is delivered to the MFI at the latest 15 (fifteen) working days after the Inspection results report is established.
Article 15
MFI Inspections are implemented based on Inspection Guidelines which are further regulated in an OJK Circular Letter.

CHAPTER IV
EVALUATION OF GUIDANCE AND SUPERVISION OF MFIs
Article 16
(1) The District/City Regional Government or another party receiving the delegation of guidance and supervision reports periodically on the results of guidance and supervision of MFIs to the OJK for a 1 (one) calendar year period at the latest 2 (two) months from the end of the calendar year. (2) The OJK evaluates the implementation of guidance and supervision of MFIs carried out by the District/City Regional Government or another designated party for a 1 (one) calendar year period. (3) In the event that the authority for guidance and supervision of MFIs delegated to the District/City Regional Government or another designated party cannot be exercised properly for any reason, the OJK may take over the authority for guidance and supervision of MFIs and delegate it to another party.

CHAPTER V
SANCTIONS
Article 17
(1) MFIs that do not fulfill the provisions in Article 13 paragraph (1) and paragraph (2) of this Financial Services Authority Regulation are subject to administrative sanctions in the form of a written warning. (2) Written warning sanctions as referred to in paragraph (1) are given at most 3 (three) times consecutively with a validity period of each 40 (forty) working days. (3) In the event that before the validity period of the written warning sanction as referred to in paragraph (2) ends, the MFI has fulfilled the provisions as referred to in paragraph (1), the OJK or the local District/City Government or another party designated by the OJK withdraws the written warning sanction. (4) In the event that the validity period of the third written warning as referred to in paragraph (2) ends and the MFI still does not fulfill the provisions as referred to in paragraph (1), the OJK requests the shareholders or the cooperative members' meeting to replace the MFI's Board of Directors within a time limit of at the latest 6 (six) months from the notification from the OJK. (5) In the event that the time limit as referred to in paragraph (4) ends and the general meeting of shareholders or the members' meeting does not replace the MFI's Board of Directors as referred to, the OJK dismisses the MFI's Board of Directors and subsequently appoints and appoints a temporary replacement until the general meeting of shareholders or the members' meeting appoints a permanent replacement with the OJK's approval.

CHAPTER VI
CLOSING PROVISIONS
Article 18
This Financial Services Authority Regulation takes effect on January 8, 2015.
To ensure that everyone knows it, it orders the promulgation of this Financial Services Authority Regulation by placing it in the State Gazette of the Republic of Indonesia. Established in Jakarta on October 31, 2014 CHAIRMAN OF THE BOARD OF COMMISSIONERS FINANCIAL SERVICES AUTHORITY, Signed, MULIAMAN D. HADAD Promulgated in Jakarta on November 11, 2014 MINISTER OF LAW AND HUMAN RIGHTS REPUBLIC OF INDONESIA, Signed, YASONNA. H LAOLY STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2014 NUMBER 344 Copy in accordance with the original Director of Law 1 Ministry of Law, Signed, Tini Kustini

EXPLANATION
OF
FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 14/POJK.05/2014
CONCERNING
GUIDANCE AND SUPERVISION OF MICROFINANCE INSTITUTIONS
I. GENERAL
The Government has established Law Number 1 of 2013 concerning Microfinance Institutions (MFIs) on January 8, 2013.
The Law on MFIs mandates several further technical regulatory matters related to the guidance, regulation, and supervision of MFIs, including inspection authority in the form of a Financial Services Authority Regulation. This is because, based on the mandate of the Law on MFIs stating that the Financial Services Authority is the authority that guides, regulates, and supervises MFIs, which is further stated that regarding guidance and supervision, delegation is carried out to the local District/City Governments where the MFIs operate, so that it is expected that MFIs can continue to contribute to empowering low-income communities and micro-business actors while still paying attention to prudence aspects and protection for customers. In relation to this matter, the Financial Services Authority establishes the Financial Services Authority Regulation concerning the Guidance and Supervision of Microfinance Institutions.
II. ARTICLE BY ARTICLE
Article 1
Quite clear
Article 2
Quite clear
Article 3
Quite clear
Article 4
Quite clear
Article 5
Quite clear
Article 6
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Article 7
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Article 8
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Article 9
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Article 10
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Article 11
Paragraph (1)
Quite clear
Paragraph (2)
Quite clear
Paragraph (3)
Quite clear
Paragraph (4)
What is meant by third parties includes borrower customers, depositor customers, creditor parties, and/or other parties related to MFI business activities. Paragraph (5) Quite clear
Article 12
Quite clear
Article 13
Quite clear
Article 14
Quite clear
Article 15
Quite clear
Article 16
Quite clear
Article 17
Quite clear
Article 18
Quite clear
SUPPLEMENT TO THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 5623