Financial Services Authority Regulation Number 6/POJK.05/2014 Concerning the Conduct of Guarantee Institution Business

FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA
COPY
FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 6/POJK.05/2014
CONCERNING
THE CONDUCT OF GUARANTEE INSTITUTION BUSINESS
BY THE GRACE OF GOD THE ALMIGHTY
THE COMMISSIONERS OF THE FINANCIAL SERVICES AUTHORITY,

Considering:
a. that in order to foster the development of Guarantee Institutions capable of providing guarantee services beneficial to the dynamic community, more comprehensive regulations are required while still adhering to prudential principles, particularly regarding business conduct activities; b. that based on the considerations referred to in letter a, it is necessary to establish a Financial Services Authority Regulation concerning the Conduct of Guarantee Institution Business;

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. Presidential Regulation Number 2 of 2008 concerning Guarantee Institutions;

DECIDING:

To establish: FINANCIAL SERVICES AUTHORITY REGULATION CONCERNING THE CONDUCT OF GUARANTEE INSTITUTION BUSINESS.

CHAPTER I
GENERAL PROVISIONS

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

1. Guarantee is the activity of providing a guarantee for the fulfillment of the financial obligations of the Guaranteed Party.
2. Reinsurance is the activity of providing a guarantee for the fulfillment of the financial obligations of a Guarantee Company or Sharia Guarantee Company that has guaranteed the fulfillment of the financial obligations of the Guaranteed Party.
3. Guarantee Institution refers to Guarantee Companies, Sharia Guarantee Companies, Reinsurance Companies, and Sharia Reinsurance Companies.
4. Guarantee Company is a legal entity operating in the financial sector with business activities conducting Guarantees.
5. Sharia Guarantee Company is a legal entity operating in the financial sector with business activities conducting Guarantees based on Sharia Principles.
6. Reinsurance Company is a legal entity operating in the financial sector with business activities conducting Reinsurance.
7. Sharia Reinsurance Company is a legal entity operating in the financial sector with business activities conducting Reinsurance based on Sharia Principles.
8. Credit is the provision of money or debt instruments that can be equated with it, based on a loan agreement or consensus between a Financial Institution and another party, obligating the borrower to repay their debt within a certain period with interest.
9. Financing Based on Sharia Principles is financing based on Sharia principles provided by a Financial Institution based on an agreement or consensus between the Financial Institution and another party.
10. Sharia Principles are Islamic legal provisions based on fatwas or Sharia compliance statements from the National Sharia Board of the Indonesian Ulema Council.
11. Sharia Business Unit is a central office unit of a Guarantee Company or Reinsurance Company that functions as the central office for branch offices and/or offices other than branch offices conducting Guarantee or Reinsurance activities based on Sharia Principles.
12. Productive Business is an activity to produce goods and/or services that add value and increase income for the Guaranteed Party.
13. Gearing Ratio is a limit established to measure the ability of a Guarantee Institution to conduct Guarantee or Reinsurance activities.
14. Financial Institution refers to banks and non-bank financial institutions.
15. Branch Office is an office of a Guarantee Institution that is directly responsible to the central office.
16. Guarantee Recipient is a Financial Institution or an entity outside of Financial Institutions that has provided financial facilities to the Guaranteed Party.
17. Guaranteed Party is a party that has obtained financial facilities from a Financial Institution or an entity outside of Financial Institutions, which is guaranteed by a Guarantee Company or Sharia Guarantee Company, whether individuals, business entities, limited liability companies, business units of foundations, cooperatives, and micro, small, and medium enterprises (MSMEs).
18. Guarantee Certificate is proof of the Guarantee agreement from a Guarantee Company or Sharia Guarantee Company to the Guarantee Recipient regarding the financial obligations of the Guaranteed Party.
19. Guarantee Service Fee, hereinafter abbreviated as IJP, is the amount of money received by a Guarantee Company or Sharia Guarantee Company from the Guaranteed Party in the course of Guarantee business activities.
20. Reinsurance Service Fee, hereinafter abbreviated as IJPU, is the amount of money received by a Reinsurance Company or Sharia Reinsurance Company from a Guarantee Company or Sharia Guarantee Company in the course of Reinsurance business activities.
21. Claim is a payment demand by the Guarantee Recipient to a Guarantee Company or Sharia Guarantee Company caused by the Guaranteed Party's inability to fulfill its obligations according to the agreement, or a payment demand by a Guarantee Company or Sharia Guarantee Company to a Reinsurance Company or Sharia Reinsurance Company, which has paid the financial obligations of the Guaranteed Party to the Guarantee Recipient.
22. Financial Services Authority is an independent institution free from the interference of other parties that has the function, duties, and authority for regulation, supervision, examination, and investigation as referred to in the Law concerning the Financial Services Authority.

CHAPTER II
BUSINESS ACTIVITIES

Article 2
(1) The business activities of a Guarantee Company or Sharia Guarantee Company are conducting Guarantees by covering the payment of the financial obligations of the Guaranteed Party to the Guarantee Recipient if the Guaranteed Party is unable to fulfill its obligations based on the agreed agreement. (2) The business activities of a Reinsurance Company or Sharia Reinsurance Company are conducting Reinsurance by covering the payment of the financial obligations of a Guarantee Company or Sharia Guarantee Company to the Guarantee Recipient if the Guaranteed Party is unable to fulfill its obligations based on the agreed agreement and the Guarantee Company or Sharia Guarantee Company has paid the fulfillment of the financial obligations of the Guaranteed Party.

Article 3
(1) Guarantee business activities as referred to in Article 2 paragraph (1) include:
a. Guarantee of Credit or Financing Based on Sharia Principles distributed by Financial Institutions; b. Guarantee of Credit and/or loans or Financing Based on Sharia Principles distributed by savings and loan cooperatives to their members;
c. Guarantee of Credit and/or loans or Financing Based on Sharia Principles from partnership programs distributed by state-owned enterprises in the context of partnership and environmental nurturing programs (PKBL); and/or
d. Guarantee of debt instruments.
(2) In addition to conducting business activities as referred to in paragraph (1), Guarantee Companies or Sharia Guarantee Companies may conduct other activities, namely:
a. Guarantee of trade transactions; b. Guarantee of goods and/or services procurement (surety bond);
c. Guarantee of bank guarantees (counter bank guarantee);
d. Guarantee of domestic documentary credits (SKBDN); e. Guarantee of letters of credit (L/C); f. Guarantee of customs bonds (custom bond); g. Other guarantees after obtaining approval from the Financial Services Authority; h. Management consulting services related to Guarantee business activities; and/or
i. Provision of information/databases of the Guaranteed Party related to Guarantee business activities.
(3) Guarantee Companies or Sharia Guarantee Companies intending to conduct business activities as referred to in paragraph (2) letters a, b, c, d, e, f, and g must first report to the Financial Services Authority with the following procedures:
a. submitting a proposal related to the guarantee activities to be conducted, accompanied by a description of at least the product, benefits, claim mechanism, and the rights and obligations of the parties; b. based on this report, the Financial Services Authority will issue a letter regarding the recording of these guarantee activities as one of the activities conducted by the concerned Guarantee Institution in Financial Services Authority administration within at most 30 (thirty) days after the proposal referred to in letter a is received. (4) Reinsurance business activities as referred to in Article 2 paragraph (2) include:
a. Guarantee of Credit or Financing Based on Sharia Principles distributed by Financial Institutions; b. Guarantee of Credit and/or loans or Financing Based on Sharia Principles distributed by savings and loan cooperatives to their members;
c. Guarantee of Credit and/or loans or Financing Based on Sharia Principles from partnership programs distributed by state-owned enterprises in the context of partnership and environmental nurturing programs (PKBL); and/or
d. Guarantee of debt instruments.
(5) Reinsurance Companies or Sharia Reinsurance Companies may conduct other business activities as referred to in paragraph (2) except for letters h and i.
(6) Reinsurance Companies or Sharia Reinsurance Companies intending to conduct business activities as referred to in paragraph (5) must first report to the Financial Services Authority with procedures as referred to in paragraph (3).

Article 4
(1) In conducting its business activities, Guarantee Companies or Sharia Guarantee Companies may use the services of guarantee agents.
(2) Guarantee agents as referred to in paragraph (1) are individuals or legal entities that conduct marketing of Guarantee business activities on behalf of and for the account of Guarantee Companies or Sharia Guarantee Companies. (3) Guarantee agents as referred to in paragraph (2) must be registered with the Indonesian Guarantee Company Association. (4) Guarantee Companies or Sharia Guarantee Companies must have an agency agreement with guarantee agents that conduct marketing on behalf of and for the account of the Guarantee Company or Sharia Guarantee Company. (5) All actions of guarantee agents related to Guarantee transactions become the responsibility of the Guarantee Company or Sharia Guarantee Company that employs the agent. (6) In the agency agreement as referred to in paragraph (4), Guarantee Companies or Sharia Guarantee Companies must include a clause providing commissions to Guarantee agents of up to 20% (twenty percent) of the IJP.

Article 5
Guarantee Companies and Sharia Guarantee Companies must be members of the Indonesian Guarantee Company Association.

Article 6
(1) Guarantee Institutions must maintain their liquidity.
(2) The liquidity ratio of Guarantee Institutions is set at a minimum of 150% (one hundred fifty percent).
(3) The liquidity ratio as referred to in paragraph (2) is calculated using the current ratio, which is the comparison between current assets and current liabilities.

Article 7
(1) Guarantee Companies may only conduct investments in the form of:
a. deposits at banks; b. government securities and/or Sharia government securities;
c. securities and/or Sharia securities issued by Bank Indonesia;
d. corporate bonds and/or corporate sukuk that are investment grade from securities rating agencies that have business licenses from the Financial Services Authority; e. shares listed on the Indonesia Stock Exchange; f. mutual funds and/or Sharia mutual funds; g. asset-backed securities listed on the Indonesia Stock Exchange; and/or h. direct investments in companies in the financial services sector in Indonesia. (2) Reinsurance Companies may only conduct investments as referred to in paragraph (1) letters a through g. (3) Restrictions on investments as referred to in paragraph (1) and paragraph (2) are as follows:
a. investments in the form of deposits are:

1. at each commercial bank, set at a maximum of 25% (twenty-five percent) of the total investment amount;
2. at each rural credit bank, set at a maximum equal to the value of the guarantee from the Deposit Insurance Institution for the deposits or savings of each customer of the concerned rural credit bank;
3. for Guarantee Companies owned by Regional Governments and with operational scopes at the provincial level, the provision in number 1 does not apply.
   b. investments in the form of government securities and/or Sharia government securities are set at a maximum of 50% (fifty percent) of the total investment amount;
   c. investments in the form of securities and/or Sharia securities issued by Bank Indonesia are set at a maximum of 50% (fifty percent) of the total investment amount;
   d. investments in the form of corporate bonds and/or corporate sukuk that are investment grade at the time of placement are set at a maximum of 10% (ten percent) for each issuer and in total a maximum of 20% (twenty percent) of the total investment amount; e. investments in the form of shares listed on the Indonesia Stock Exchange are set at a maximum of 5% (five percent) of the total investment amount for each issuer and in total a maximum of 20% (twenty percent) of the total investment amount; f. investments in the form of mutual funds and/or Sharia mutual funds are set at a maximum of 5% (five percent) of the total investment amount for each investment manager and in total a maximum of 20% (twenty percent) of the total investment amount; g. investments in the form of asset-backed securities listed on the Indonesia Stock Exchange are set at a maximum of 5% (five percent) of the total investment amount for each investment manager or issuer and in total a maximum of 20% (twenty percent) of the total investment amount; and/or h. investments in the form of direct investments in companies in the financial services sector in Indonesia are set at a maximum of 10% (ten percent) of the total investment amount. (4) For Guarantee Companies receiving special assignments from the Government, investments in the form of direct investments in the financial services sector in Indonesia may exceed 10% (ten percent) of the total investment amount as referred to in paragraph (3) letter h, up to a maximum of 15% (fifteen percent) of the total investment amount. (5) Investments in the form of direct investments in companies in the financial services sector in Indonesia for Guarantee Companies receiving special assignments from the Government as referred to in paragraph (4) must first obtain approval from the Financial Services Authority. (6) The total amount of investment placements in corporate bonds and/or corporate sukuk, shares listed on the Indonesia Stock Exchange, mutual funds and/or Sharia mutual funds, asset-backed securities listed on the Indonesia Stock Exchange, and direct investments in companies in the financial sector in Indonesia, is set at a maximum of 60% (sixty percent) of the total investment amount. (7) The total amount of investments of Guarantee Institutions placed with affiliated parties, excluding direct investments, is set at a maximum of 10% (ten percent) of the total investment amount. (8) Investment placements with affiliated parties as referred to in paragraph (7) do not include relationships due to ownership or capital participation by the central government or regional governments.

Article 8
(1) Sharia Guarantee Companies may only conduct investments in the form of:
a. deposits at Sharia commercial banks and Sharia rural credit banks; b. Sharia government securities;
c. Sharia securities issued by Bank Indonesia;
d. corporate sukuk that are investment grade from securities rating agencies that have licenses from the Financial Services Authority; e. shares listed on the Indonesia Stock Exchange and included in the list of Sharia securities established by the Financial Services Authority; f. Sharia mutual funds; g. Sharia asset-backed securities listed on the Indonesia Stock Exchange; and/or h. direct investments in companies in the financial sector in Indonesia. (2) Sharia Reinsurance Companies may only conduct investments as referred to in paragraph (1) letters a through g. (3) Provisions as referred to in Article 7 paragraph (3), paragraph (6), paragraph (7), and paragraph (8) apply mutatis mutandis to the investments of Sharia Guarantee Companies and Sharia Reinsurance Companies.

Article 9
Guarantee Institutions must have Claim reserves of at least 0.25% (zero point two five percent) of the value of Guarantees assumed by the Guarantee Institution.

Article 10
(1) Guarantee Institutions must have general reserves of at least 25% (twenty-five percent) of net profit or business result differences at the end of each annual reporting period. (2) General reserves as referred to in paragraph (1) may only be used to cover losses.

CHAPTER III
RESTRICTIONS

Article 11
(1) Guarantee Institutions are prohibited from:
a. providing loans; or b. receiving loans.
(2) The provision as referred to in paragraph (1) letter a is exempted for Guarantee Companies and Sharia Guarantee Companies in the context of guarantee restructuring for micro, small, and medium enterprises. (3) The provision as referred to in paragraph (1) letter b is exempted for Guarantee Companies and Sharia Guarantee Companies that receive loans by issuing mandatory convertible bonds.

CHAPTER IV
REQUIREMENTS FOR PROVIDING GUARANTEE SERVICES

Article 12
(1) The provision of Guarantee services must at least meet the following requirements:
a. Direct Guarantee:
1. feasibility analysis of the prospective Guaranteed Party conducted by the prospective Guarantee Recipient;
2. a Guarantee application from the prospective Guaranteed Party to the Guarantee Company or Sharia Guarantee Company;
3. a letter of guarantee request confirmation from the prospective Guarantee Recipient to the Guarantee Company or Sharia Guarantee Company;
4. feasibility analysis of the prospective Guaranteed Party conducted by the Guarantee Company or Sharia Guarantee Company;
5. payment of IJP to the Guarantee Company or Sharia Guarantee Company; and
6. issuance of the Guarantee Certificate.
b. Indirect Guarantee:
1. feasibility analysis of the prospective Guaranteed Party conducted by the prospective Guarantee Recipient;
2. a Guarantee application from the prospective Guaranteed Party through the Guarantee Recipient;
3. a cooperation agreement between the Guarantee Recipient and the Guarantee Company or Sharia Guarantee Company;
4. payment of IJP to the Guarantee Company or Sharia Guarantee Company; and
5. issuance of the Guarantee Certificate.
(2) In the event that Guarantee activities are conducted in the form of Co-guarantee, the requirement for issuing the Guarantee Certificate is only required for one of the Guarantee Companies or Sharia Guarantee Companies. (3) The Co-guarantee mechanism as referred to in paragraph (2) must be stipulated in an agreement between the parties as Guarantors, containing at least:
a. Identity of the parties as Guarantors. b. Proportion of IJP revenue between the parties as Guarantors;
c. Proportion of claims to be paid to the guarantee recipient between the parties as Guarantors in the event of a claim;
d. Responsibilities and obligations of each party in the guarantee approval process; and e. Responsibilities and obligations of each party in the verification process of claim submissions from the guarantee recipient. (4) Payment of IJP as referred to in paragraph (1) may be made after the issuance of the Guarantee Certificate for Government Program Guarantees.

Article 13
(1) The Guarantee Certificate as referred to in Article 12 paragraph (1) letter a number 6 and Article 12 paragraph (1) letter b number 5 must contain at least provisions regarding:
a. name and address of the Guarantee Company, Guarantee Recipient, and Guaranteed Party; b. description of Guarantee benefits;
c. type of Guarantee;
d. value of the Guarantee; e. value of IJP; and f. duration of the Guarantee.
(2) The attachment containing supporting documents of the Guarantee Certificate is an integral part of the Guarantee Certificate.

Article 14
The cooperation agreement as referred to in Article 12 paragraph (1) letter b number 3 must contain at least:
a. name and address of the Guarantee Company or Sharia Guarantee Company, and the Guarantee Recipient; b. description of Guarantee benefits;
c. rights and obligations of the Guarantee Company or Sharia Guarantee Company, Guarantee Recipient, and Guaranteed Party;
d. method of IJP payment; e. time recognized as the moment of IJP payment receipt; f. cancellation of the Guarantee contract agreement, from either the Guarantee Company or Sharia Guarantee Company or the Guarantee Recipient, including conditions and causes; g. conditions and procedures for claim submission, including supporting evidence required for claim submission; h. procedures for the transfer of claim rights after the Guarantee Company or Sharia Guarantee Company pays the claim;
i. choice of dispute resolution venue; and
j. language used as reference in the event of disputes or differences of opinion for guarantee certificates printed in 2 (two) or more languages.

Article 15
(1) Guarantees may be cancelled if:
a. the Guarantee Recipient or Guaranteed Party is proven to have provided false information, data, or documents; b. the Guarantee Recipient or Guaranteed Party clearly hides information, data, or documents that do not comply with Guarantee regulations; or
c. the Guarantee Recipient or Guaranteed Party is proven to have violated regulations regulated in the cooperation agreement.
(2) Reinsurance may be cancelled in the event of the cancellation of a Guarantee caused by the fulfillment of the provisions as referred to in paragraph (1).

Article 16
(1) Guarantees cannot be provided if the prospective Guaranteed Party is listed in the list of non-performing loans/financing of banks or non-bank financial institutions. (2) Guarantees for Productive Businesses may only be provided if the prospective Guaranteed Party meets the following requirements:
a. individual business by Indonesian citizens, Indonesian legal entities, or other business forms recognized by applicable legislation owned by Indonesian citizens; b. having a fixed business location or domicile within the territory of the Republic of Indonesia; and
c. use of...

c. use of Credit and/or financing to be guaranteed for business activities within the territory of the Republic of Indonesia.

CHAPTER V
GUARANTEE FEE
Article 17
(1) In carrying out its business activities, Guarantee Companies or Sharia Guarantee Companies receive Guarantee Fees (IJP), and Reinsurance Companies or Sharia Reinsurance Companies receive Reinsurance Fees (IJPU). (2) The magnitude of the IJP and IJPU tariffs is determined with considerations, including:
a. guaranteed risk calculated based on, among others:

1. claim ratio;
2. type of credit or financing;
3. scope of Guarantee; and
4. duration of Guarantee;
   b. general administrative, operational, and marketing costs; and
   c. profit.
   (3) The provisions on IJP as referred to in paragraph (2) do not apply to government program guarantees.

CHAPTER VI
CLAIMS AND TRANSFER OF CREDIT RIGHTS
First Section
Claims
Article 18
(1) Claims submitted by Guarantee Recipients to Guarantee Companies or Sharia Guarantee Companies may be made when the Guaranteed Party fails to fulfill their obligations. (2) Claims submitted by Guarantee Companies or Sharia Guarantee Companies to Reinsurance Companies or Sharia Reinsurance Companies are made after the Guarantee Company or Sharia Guarantee Company pays the financial obligations of the Guaranteed Party to the Guarantee Recipient.

Article 19
(1) Guarantee Institutions are prohibited from taking actions that may delay the settlement or payment of Claims, or from failing to take actions that should be taken, which may result in delays in the settlement or payment of Claims. (2) Guarantee Institutions must provide approval or rejection of claim payment requests no later than 14 (fourteen) days since the receipt of complete claim payment requests. (3) Guarantee Institutions must pay Claims within a period of no later than 30 (thirty) days after the Claim is approved.

Second Section
Transfer of Credit Rights
Article 20
(1) Since Claims are paid by Guarantee Companies or Sharia Guarantee Companies, the credit rights of the Guarantee Recipient to the Guaranteed Party transfer to the credit rights of the Guarantee Company or Sharia Guarantee Company (subrogation). (2) Guarantee Companies or Sharia Guarantee Companies may make agreements with Guarantee Recipients so that Guarantee Recipients make collection efforts for the credit rights of the Guarantee Company or Sharia Guarantee Company as referred to in paragraph (1) on behalf of and for the benefit of the Guarantee Company or Sharia Guarantee Company. (3) Guarantee Companies, Sharia Guarantee Companies, Reinsurance Companies, and Sharia Reinsurance Companies obtain collection results proportionally.

CHAPTER VII
SELF-RETENTION
Article 21
(1) Guarantee Companies and Sharia Guarantee Companies must have self-retention for each risk of Guarantee.
(2) Self-retention as referred to in paragraph (1) is a portion of the Guarantee amount for each risk that is the responsibility of the Guarantee Company or Sharia Guarantee Company without support from Reinsurance Companies or Sharia Reinsurance Companies. (3) Self-retention as referred to in paragraph (1) is at most:
a) 5% (five percent) per Guaranteed Party from the equity of the Guarantee Company or Sharia Guarantee Company for individual Guaranteed Parties, business entities, limited liability companies, and business units owned by foundations. b) 10% (ten percent) per Guaranteed Party from the equity of the Guarantee Company or Sharia Guarantee Company for group Guaranteed Parties and cooperatives. (4) In the event that Guarantee Companies and Sharia Guarantee Companies provide guarantees exceeding the maximum limit as referred to in paragraph (3), they must obtain support from Reinsurance Companies or Sharia Reinsurance Companies. (5) In the event that reinsurance support from Reinsurance Companies or Sharia Reinsurance Companies as referred to in paragraph (4) is not obtained, reinsurance support may be obtained from other Guarantee Companies or Sharia Guarantee Companies, or insurance companies. (6) The value of Reinsurance that can be implemented by Guarantee Companies or Sharia Guarantee Companies as referred to in paragraph (5) is at most 30% (thirty percent) of the total value of Guarantee.

CHAPTER VIII
GEARING RATIO AND GUARANTEE VALUE FOR PRODUCTIVE BUSINESSES
Article 22
(1) In order to conduct healthy Guarantee or Reinsurance business, Guarantee Institutions must maintain the Gearing Ratio.
(2) The Gearing Ratio as referred to in paragraph (1) is the ratio between the total value of Guarantee or Reinsurance borne by itself and the equity of the Guarantee Institution at a certain time. (3) The equity of the Guarantee Institution as referred to in paragraph (2) is:
a. the sum of paid-up capital, reserves, and profits, minus losses, in the event that the Guarantee Institution is in the form of a limited liability company, public company, state-owned enterprise, or regional enterprise; or b. the sum of principal deposits, capital certificates, and remaining business results, minus participations and losses, in the event that the Guarantee Institution is in the form of a cooperative legal entity. (4) The Gearing Ratio for Guarantee or Reinsurance for Productive Businesses is set at a maximum of 10 (ten) times. (5) The Total Gearing Ratio for Guarantee Institutions is set at a maximum of 40 (forty) times.

Article 23
(1) The Financial Services Authority will issue written notifications in the event that there are Guarantee Institutions that do not meet the Productive Business Gearing Ratio provisions as referred to in Article 22 paragraph (4) and the Total Gearing Ratio as referred to in Article 22 paragraph (5). (2) Guarantee Institutions that do not meet the Productive Business Gearing Ratio provisions as referred to in Article 22 paragraph (4) and the Total Gearing Ratio as referred to in Article 22 paragraph (5) are given a period of no later than 6 (six) months from the date of the notification letter to the Guarantee Institution to meet the Gearing Ratio provisions. (3) Guarantee Institutions that do not meet the Gearing Ratio provisions as referred to in paragraphs (1) and (2) must submit a Gearing Ratio fulfillment plan approved by the Board of Commissioners to the Financial Services Authority. (4) The Gearing Ratio fulfillment plan contains steps including:
a. restructuring of Guarantee or Reinsurance; b. cessation of new Guarantee or Reinsurance provision;
c. capital increase or principal deposits and capital certificates by shareholders; and/or
d. business merger.
(5) The Gearing Ratio fulfillment plan as referred to in paragraph (3) is submitted no later than 1 (one) month from the date of the notification letter to the Guarantee Institution. (6) In the event that the 6 (six) month period from the date of the notification letter from the Financial Services Authority has passed and the Guarantee Institution has not yet met the required Gearing Ratio provisions, the Guarantee Institution is subject to administrative sanctions as referred to in Article 32.

Article 24
(1) Guarantee Companies and Sharia Guarantee Companies must have a Guarantee Value for Productive Businesses of at least 20% (twenty percent) of the total value of Guarantee. (2) The Guarantee Value for Productive Businesses as referred to in paragraph (1) must be fulfilled within a period of no later than 2 (two) years since obtaining the business license.

CHAPTER IX
GUARANTEE AND REINSURANCE ACTIVITIES BASED ON SHARIA PRINCIPLES
Article 25
Sharia Guarantee Companies, Sharia Reinsurance Companies, and Sharia Business Units must apply the following basic principles:
a. the fulfillment of justice ('adl), trustworthiness (amanah), balance (tawazun), public interest (maslahah), and universality (syumul); and b. containing no prohibited matters, such as uncertainty/ambiguity (gharar), gambling (maysir), interest (riba), oppression (zhulum), bribery (risywah), sin, and haram objects.

Article 26
(1) Guarantee agreements and Reinsurance agreements with Sharia Principles must use the kafalah bil ujrah contract.
(2) The kafalah bil ujrah contract as referred to in paragraph (1) must contain at least:
a. The Guaranteed Object can be all or part of:

1. payment obligations (dayn) arising from Sharia transactions; and
2. other matters that can be guaranteed based on Sharia Principles.
   b. The statement of offer and acceptance must be expressed by the parties to indicate their will to enter into a contract (akad).
   c. The magnitude of the Guarantee Fee (IJP) must be established in the contract based on mutual agreement.
   d. Kafalah bil ujrah is binding and cannot be unilaterally cancelled.

Article 27
Guarantee Companies and Reinsurance Companies may conduct part of their business activities based on Sharia Principles by establishing Sharia Business Units.

CHAPTER X
REPORTS
Article 28
(1) Guarantee Institutions must submit complete and accurate monthly reports to the Financial Services Authority.
(2) Provisions regarding the form, structure, and submission of monthly reports are regulated in Financial Services Authority Regulations regarding Monthly Reports of Non-Bank Financial Industries.

Article 29
(1) Guarantee Institutions must submit annual financial reports audited by public accountants, complete and accurate, to the Financial Services Authority no later than 4 (four) months after the end of the fiscal year. (2) The fiscal year as referred to in paragraph (1) is based on the calendar year. (3) Annual financial reports as referred to in paragraph (1) are prepared based on applicable accounting standards. (4) Annual financial reports as referred to in paragraph (1) are prepared in Rupiah currency. (5) Annual financial reports as referred to in paragraph (1) are submitted in writing to the Financial Services Authority at the address as stated on the official website of the Financial Services Authority. (6) In the event that the submission deadline falls on a holiday, the submission deadline is the next working day. (7) Guarantee Institutions that submit reporting as referred to in paragraph (1), but have passed the reporting period, are subject to administrative warning sanctions that end automatically.

Article 30
In the event that Guarantee Institutions obtain business licenses less than 6 (six) months until the end of the calendar year, the obligation to submit annual financial reports as referred to in Article 29 begins to apply in the following calendar year.

CHAPTER XI
PUBLICATION OF FINANCIAL REPORTS
Article 31
(1) Guarantee Institutions must publish the balance sheet and short profit/loss calculations no later than 4 (four) months after the end of the fiscal year, at least in 1 (one) daily newspaper in Indonesia with wide circulation within the operational area. (2) Guarantee Institutions must report the implementation of the announcement as referred to in paragraph (1) in writing to the Financial Services Authority no later than 30 (thirty) days after the implementation of the announcement, attached with proof of announcement. (3) Guarantee Institutions that submit announcements and reporting as referred to in paragraphs (1) and (2), but have passed the submission period, are subject to administrative warning sanctions that end automatically.

CHAPTER XII
ADMINISTRATIVE SANCTIONS
Article 32
(1) Guarantee Institutions that do not meet the provisions of Article 3 paragraph (3), Article 3 paragraph (6), Article 6 paragraph (2), Article 7, Article 8, Article 9, Article 10 paragraph (1), Article 11, Article 19, Article 21 paragraph (1), Article 21 paragraph (4), Article 23 paragraph (3), Article 23 paragraph (5), Article 24, Article 25, and Article 26 of this Financial Services Authority Regulation are subject to administrative sanctions consisting of:
a. warning letters; b. suspension of business activities; or
c. revocation of business licenses.
(2) Administrative sanctions consisting of warning letters as referred to in paragraph (1) letter a, are issued in writing at most 3 (three) times consecutively with a validity period of 60 (sixty) days each. (3) In the event that before the validity period of the warning letter as referred to in paragraph (2) expires, the Guarantee Institution has met the provisions as referred to in paragraph (1), the Financial Services Authority revokes the warning sanction. (4) In the event that the validity period of the third warning sanction as referred to in paragraph (2) expires and the Guarantee Institution still does not meet the provisions as referred to in paragraph (1), the Financial Services Authority imposes administrative sanctions consisting of business activity suspension. (5) Business activity suspension sanctions as referred to in paragraph (4) are issued in writing and are valid for a period of 6 (six) months from the date the business activity suspension sanction letter is issued. (6) During the validity period of the business activity suspension sanction as referred to in paragraph (4), Guarantee Institutions:
a. are prohibited from conducting new Guarantee or Reinsurance; and b. remain responsible for settling all obligations, including Guarantee or Reinsurance obligations that have been carried out as stated in guarantee certificates and/or cooperation agreements. (7) In the event that the validity period of warning and/or business activity suspension sanctions expires on a holiday, the warning and/or business activity suspension sanctions are valid until the next working day. (8) In the event that before the validity period of the business activity suspension sanction as referred to in paragraph (5) expires, the Guarantee Institution has met the provisions as referred to in paragraph (1), the Financial Services Authority revokes the business activity suspension sanction. (9) In the event that by the end of the validity period of the business activity suspension sanction as referred to in paragraph (5), the Guarantee Institution still does not meet the provisions as referred to in paragraph (1), the Financial Services Authority revokes the business license of the concerned Guarantee Institution.

CHAPTER XIII
TRANSITIONAL PROVISIONS
Article 33
(1) Every administrative sanction already imposed on Guarantee Institutions based on the Ministry of Finance Regulation Number 222/PMK.010/2008 concerning Credit Guarantee Companies and Credit Reinsurance Companies and the Ministry of Finance Regulation Number 99/PMK.010/2011 concerning Amendments to the Ministry of Finance Regulation Number 222/PMK.010/2008 concerning Credit Guarantee Companies and Credit Reinsurance Companies, is declared valid and applicable. (2) Guarantee Institutions that have not been able to overcome the causes of administrative sanctions as referred to in paragraph (1) are subject to subsequent sanctions in accordance with this Financial Services Authority Regulation.

Article 34
For Guarantee Institutions that have obtained business licenses before the implementation of this Financial Services Authority Regulation, they must meet the investment provisions as referred to in Article 7 and Article 8 within a period of no later than 2 (two) years from the implementation of this Financial Services Authority Regulation.

CHAPTER XIV
CLOSING PROVISIONS
Article 35
At the time this Financial Services Authority Regulation comes into force, provisions regarding the management of Guarantee Institution business are subject to this Financial Services Authority Regulation.

Article 36
This Financial Services Authority Regulation comes into force on the date of enactment.

To be known by everyone, ordering the enactment of this Financial Services Authority Regulation by placing it in the State Gazette of the Republic of Indonesia.

Established in Jakarta on 7 April 2014
CHAIRMAN OF THE BOARD OF COMMISSIONERS
FINANCIAL SERVICES AUTHORITY signed. signed.
MULIAMAN D. HADAD

Enacted in Jakarta on 8 April 2014
MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA, signed.
AMIR SYAMSUDIN

STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2014 NUMBER 73 Copy in accordance with the original HEAD OF LEGAL ASSISTANCE DIVISION LAW DIRECTORATE, signed.
MUFLI ASMAWIDJAJA

EXPLANATION
OF
FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 6/POJK.05/2014
CONCERNING
THE MANAGEMENT OF GUARANTEE INSTITUTION BUSINESS

I. GENERAL
Guarantee Institutions are one of the non-bank financial institutions expected to bridge the access of MSMEs to banking financing facilities, so that the growth of the MSME sector is expected to impact national economic growth. For this reason, effective and efficient business activities must be carried out by Guarantee Institutions to achieve the aforementioned objectives, including rules regarding investments, guarantee provision requirements, reserve formation, retention levels, and permitted gearing ratios. Furthermore, with the enactment of Law Number 21 of 2011 concerning the Financial Services Authority on November 22, 2011, the supervision duties over Guarantee Institutions have shifted to the Financial Services Authority since December 31, 2012. Naturally, a legal basis is needed for the Financial Services Authority to exercise its functions and authority in supervising Guarantee Institutions while improving existing rules. In light of this, the Financial Services Authority establishes the Financial Services Authority Regulation concerning the Management of Guarantee Institution Business.

II. ARTICLE BY ARTICLE
Article 1
Clear enough
Article 2
Clear enough
Article 3
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Article 4
Clear enough
Article 5
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Article 6
Paragraph (1)
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Paragraph (2)
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Paragraph (3)
The current assets and current liabilities referred to in this paragraph are calculated based on generally accepted accounting standards.
Article 7
Paragraph (1)
Letter a
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Letter b
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Letter c
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Letter d
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Letter e
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Letter f
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Letter g
Asset-Backed Securities include Collective Investment Contract Asset-Backed Securities (KIK-EBA) and Asset-Backed Securities issued by PT Sarana Multigriya Finansial (Persero) Letter h Clear enough Paragraph (2) Clear enough Paragraph (3) Clear enough Paragraph (4) Clear enough Paragraph (5) Clear enough Paragraph (6) Clear enough Paragraph (7) Affiliated parties are defined as:
a. Family relationships due to marriage and descent up to the second degree, both horizontally and vertically; b. Relationships between parties with employees, directors, or commissioners of such parties;
c. Relationships between 2 (two) companies where there is one or more members of the board of directors or board of commissioners who are the same;
d. Relationships between companies and parties, directly or indirectly, controlling or controlled by such companies; e. Relationships between 2 (two) companies controlled, directly or indirectly, by the same party; or f. Relationships between companies and major shareholders. Paragraph (8) Clear enough
Article 8
Clear enough
Article 9
Clear enough
Article 10
Clear enough
Article 11
Paragraph (1)
Letter a
Providing loans refers to the activity of providing loans that results in the Guarantee Institution having a lending business line (creditor) oriented towards obtaining profit from the aforementioned activity. Letter b Receiving loans refers to the activity of receiving cash loans that results in the Guarantee Institution having loan liabilities in the financial position report. Paragraph (2) Clear enough Paragraph (3) Clear enough
Article 12
Paragraph (1)
Clear enough
Paragraph (2)
Joint Guarantee refers to Guarantee activities conducted by 2 (two) or more Guarantee Institutions, or can also be in the form of a business alliance/consortium between Guarantee Institutions and Insurance Companies to conduct Guarantee activities over the financial obligations of the Guaranteed Party. Paragraph (3) Clear enough
Article 13
Clear enough
Article 14
Clear enough
Article 15
Clear enough
Article 16
Clear enough
Article 17
Paragraph (1)
Clear enough
Paragraph (2)
The claim ratio is measured based on the comparison between the amount of claims and the total insured value over a period of at least 3 (three) years.
Paragraph (3)
Clear enough
Article 18
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Article 19
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Article 20
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Article 21
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Article 22
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Article 23
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Article 24
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Article 25
Clear enough
Article 26
Clear enough
Article 27
Clear enough
Article 28
Clear enough
Article 29
Paragraph (1)
Clear enough
Paragraph (2)
Clear enough
Paragraph (3)
Clear enough
Paragraph (4)
Clear enough
Paragraph (5)
Clear enough
Paragraph (6)
Clear enough
Paragraph (7)
Subject to administrative warning sanctions that end automatically means that the Guarantee Institution submits the annual financial report on May 10, while the provision for submitting annual financial reports is no later than April 30, so the violation of late submission of the aforementioned report is subject to the first warning sanction, but since the aforementioned report has been received by the Financial Services Authority, the aforementioned Guarantee Institution is subject to the first administrative warning sanction which ends automatically.
Article 30
Clear enough
Article 31
Paragraph (1)
Clear enough
Paragraph (2)
Clear enough
Paragraph (3)
Subject to administrative warning sanctions that end automatically means that the Guarantee Institution submits a report that it has announced the balance sheet and short profit/loss calculations but past the established provisions, so the violation of late submission of the report and announcing the balance sheet and short profit/loss calculations is subject to the first warning sanction, but since the announcement has been made and the report has been received by the Financial Services Authority, the aforementioned Guarantee Institution is subject to the first administrative warning sanction which ends automatically.
Article 32
Clear enough
Article 33
Clear enough
Article 34
Clear enough
Article 35
Clear enough
Article 36
Clear enough

SUPPLEMENT TO THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 5528