POJK on Transformation of Conventional Microfinance Institutions into Community Banks and Sharia Microfinance Institutions into Sharia Financing Community Banks

FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 62 /POJK.03/2016
ON
TRANSFORMATION OF CONVENTIONAL MICROFINANCE INSTITUTIONS INTO COMMUNITY BANKS AND SHARIA MICROFINANCE INSTITUTIONS INTO SHARIA FINANCING COMMUNITY BANKS BY THE GRACE OF THE ALMIGHTY GOD THE COMMISSIONERS OF THE FINANCIAL SERVICES AUTHORITY, Considering: that in order to implement the provisions of Article 27 of Law Number 1 of 2013 concerning Microfinance Institutions, it is necessary to establish a Financial Services Authority Regulation concerning the Transformation of Conventional Microfinance Institutions into Community Banks and Sharia Microfinance Institutions into Sharia Financing Community Banks; Recalling: 1. Law Number 7 of 1992 concerning Banking (State Gazette of the Republic of Indonesia Year 1992 Number 31, Supplement to the State Gazette of the Republic of Indonesia Number 3472) as amended by Law Number 10 of 1998 concerning Banking (State Gazette of the Republic of Indonesia Year 1998 Number 182, Supplement to the State Gazette of the Republic of Indonesia Number 3790);
2. Law Number 21 of 2008 concerning Sharia Banking (State Gazette of the
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA
COPY

Republic of Indonesia Year 2008 Number 94, Supplement to the State Gazette of the Republic of Indonesia Number 4867);
3. 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);
4. 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);
5. Financial Services Authority Regulation Number 12/POJK.05/2014 concerning Business Licensing and Institutional Aspects of Microfinance Institutions (State Gazette of the Republic of Indonesia Year 2014 Number 342, Supplement to the State Gazette of the Republic of Indonesia Number 5621), as amended by Financial Services Authority Regulation Number 61/POJK.05/2015 concerning Business Licensing and Institutional Aspects of Microfinance Institutions (State Gazette of the Republic of Indonesia Year 2015 Number 412, Supplement to the State Gazette of the Republic of Indonesia Number 5830);
6. Financial Services Authority Regulation Number 20/POJK.03/2014 concerning Community Banks (State Gazette of the Republic of Indonesia Year 2014 Number 351, Supplement to the State Gazette of the Republic of Indonesia Number 5629);
7. Financial Services Authority Regulation Number 3/POJK.03/2016 concerning Sharia Financing Community Banks (State Gazette of the Republic of Indonesia Year 2016 Number 15, Supplement to the State Gazette Number 5839);

DECIDES:
Establishing: FINANCIAL SERVICES AUTHORITY REGULATION CONCERNING TRANSFORMATION OF CONVENTIONAL MICROFINANCE INSTITUTIONS INTO COMMUNITY BANKS AND SHARIA MICROFINANCE INSTITUTIONS INTO SHARIA FINANCING COMMUNITY BANKS.

CHAPTER I
GENERAL PROVISIONS
Article 1
In this Financial Services Authority Regulation:

1. Financial Services Authority is an independent institution that has the function, duties, and authority for regulation, supervision, examination, and investigation as referred to in Law Number 21 of 2011 concerning the Financial Services Authority.
2. Conventional Microfinance Institution, hereinafter abbreviated as LKMK, is a microfinance institution as referred to in Law Number 1 of 2013 concerning Microfinance Institutions that conducts business activities on a conventional basis.
3. Sharia Microfinance Institution, hereinafter abbreviated as LKMS, is a microfinance institution as referred to in Law Number 1 of 2013 concerning Microfinance Institutions that conducts business activities based on Sharia principles.
4. Community Bank, hereinafter abbreviated as BPR, is a bank that conducts business activities on a conventional basis that does not provide services in payment transactions as referred to in Law Number 7 of 1992 concerning Banking as amended by Law Number 10 of 1998 concerning Banking.
5. Sharia Financing Community Bank, hereinafter abbreviated as BPRS, is a Sharia bank that in its activities does not provide services in payment transactions as referred to in Law Number 21 of 2008 concerning Sharia Banking.
6. Sharia Principles are Sharia Principles as referred to in Law Number 21 of 2008 concerning Sharia Banking.
7. Board of Directors:
   a. for BPR and BPRS in the form of a Limited Liability Company (Perseroan Terbatas) is the Board of Directors as referred to in Law Number 40 of 2007 concerning Limited Liability Companies; b. for BPR in the form of a cooperative legal entity is the management as referred to in Law Number 25 of 1992 concerning Cooperatives.
8. Board of Commissioners:
   a. for BPR and BPRS in the form of a Limited Liability Company (Perseroan Terbatas) is the Board of Commissioners as referred to in Law Number 40 of 2007 concerning Limited Liability Companies; b. for BPR in the form of a cooperative legal entity is the supervisor as referred to in Law Number 25 of 1992 concerning Cooperatives.
9. Controlling Shareholder, hereinafter abbreviated as PSP, is an individual, legal entity, and/or business group that:
   a. holds shares of a company, BPR, or BPRS of 25% (twenty-five percent) or more of the issued shares and has voting rights; or b. holds shares of a company, BPR, or BPRS of less than 25% (twenty-five percent) of the issued shares and has voting rights but it can be proven that it has controlled the company, BPR, or BPRS directly or indirectly.
10. Sharia Supervisory Board, hereinafter abbreviated as DPS, is a board tasked with providing advice and suggestions to the Board of Directors and supervising BPRS activities to ensure compliance with Sharia Principles.
11. Fit and Proper Test, hereinafter abbreviated as PKK, is the process of assessing the fulfillment of competency and propriety requirements for prospective principal parties, namely prospective PSP, prospective members of the Board of Directors, and prospective members of the Board of Commissioners as referred to in the provisions of applicable laws and regulations.
12. Transformation is the change of business activities of LKMK to BPR or LKMS to BPRS.
13. Transforming LKMK is an LKMK that has a business license and has applied for a license to transform into a BPR.
14. Transforming LKMS is an LKMS that has a business license and has applied for a license to transform into a BPRS.
15. Core Capital:
    a. for BPR is a capital component consisting of main core capital and additional core capital as referred to in the Financial Services Authority Regulation concerning Minimum Capital Provision Requirements and Minimum Core Capital Fulfillment for Community Banks; b. for BPRS is a capital component as referred to in provisions regulating minimum capital provision requirements for Sharia Financing Community Banks.
16. Minimum Capital Provision Requirement, hereinafter abbreviated as KPMM, is the ratio of capital to Risk-Weighted Assets, hereinafter abbreviated as ATMR, which must be provided by BPR or BPRS as regulated in provisions concerning minimum capital provision requirements and minimum core capital fulfillment for Community Banks or provisions concerning minimum capital provision requirements and minimum core capital fulfillment for Sharia Financing Community Banks.
17. Professional Certification Institution, hereinafter abbreviated as LSP, is an institution implementing work competency certification activities as referred to in the Financial Services Authority Regulation concerning Work Competency Certification for members of the Board of Directors and members of the Board of Commissioners of BPR and BPRS.

CHAPTER II
TRANSFORMATION REQUIREMENTS
Article 2
(1) LKMK must transform into a BPR or LKMS must transform into a BPRS if:
a. it conducts business activities exceeding 1 (one) administrative region of the Regency/City where the LKMK or LKMS is located; or b. LKMK or LKMS has:

1. equity of at least 5 (five) times the minimum paid-up capital requirement for BPR or BPRS in accordance with applicable laws and regulations; and
2. the amount of third-party funds in the form of deposits collected in the last 1 (one) year of at least 25 (twenty-five) times the minimum paid-up capital requirement for BPR or BPRS in accordance with applicable laws and regulations.
   (2) LKMK or LKMS that has core capital amounting to IDR 6,000,000,000.00 (six billion rupiah) may submit a transformation application on its own initiative.

Article 3
The transformation of LKMK into BPR or LKMS into BPRS as referred to in Article 2 can only be carried out by LKMK or LKMS that has obtained a business license and with the authorization of the Financial Services Authority.

Article 4
(1) During the transformation process, LKMK or LKMS is prohibited from making changes to:
a. the location of the city/regency of domicile; b. the legal entity form; and/or
c. the business activity principles.
(2) The prohibition as referred to in paragraph (1) letter b is excepted for Transforming LKMS.

Article 5
Transforming LKMK or Transforming LKMS must:
a. adjust the articles of association; b. adjust ownership, legal entity form, and PSP;
c. fulfill capital provisions;
d. fulfill Board of Directors and Board of Commissioners provisions; e. fulfill DPS provisions for BPRS; f. adjust infrastructure and human resources; and g. fulfill financial performance requirements.

First Section
Adjustment of Articles of Association
Article 6
The adjustment of the articles of association as referred to in Article 5 letter a is made in the form of a draft articles of association referring to the Financial Services Authority Regulation and Financial Services Authority circular letters concerning BPR or concerning BPRS which at least contain:
a. name and domicile; b. business activities as a BPR or BPRS;
c. capital;
d. ownership; e. authority, responsibilities, term of office, and procedures for the appointment, replacement, dismissal, and resignation of members of the Board of Directors, members of the Board of Commissioners, and members of the DPS (for BPRS); and f. provisions for the appointment of prospective members of the Board of Directors, prospective members of the Board of Commissioners, and prospective members of the DPS (for BPRS) with the approval of the Financial Services Authority.

Second Section
Adjustment of Ownership, Legal Entity Form, and PSP
Article 7
The adjustment of ownership, legal entity form, and PSP as referred to in Article 5 letter b refers to the Financial Services Authority Regulation and Financial Services Authority circular letters concerning BPR or concerning BPRS, including:
a. BPR or BPRS can only be established and owned by:

1. Indonesian citizens;
2. Indonesian legal entities whose entire owners are Indonesian citizens; and/or
3. local governments.
   b. Legal entity form:
4. BPR resulting from transformation is a limited liability company or cooperative;
5. BPRS resulting from transformation is a limited liability company.
   c. BPR or BPRS has at least 1 (one) PSP with a share ownership percentage of at least 25% (twenty-five percent) of the issued shares;
   d. PSP is prohibited from holding concurrent positions as members of the Board of Directors.

Third Section
Fulfillment of Capital Provisions
Article 8
The sources of paid-up capital funds from LKMK or LKMS in order to fulfill transformation requirements must:
a. not originate from loans or financing facilities in any form from banks and/or other parties; and/or b. not originate from and for money laundering.

Article 9
(1) Transforming LKMK or Transforming LKMS must have:
a. core capital of at least IDR 6,000,000,000.00 (six billion rupiah); and b. KPMM ratio of at least 12% (twelve percent) of ATMR.
(2) In the event that based on the Financial Services Authority's research results, LKMK or LKMS does not meet the core capital and/or KPMM ratio provisions as referred to in paragraph (1), LKMK or LKMS must increase core capital through cash contributions that meet the requirements as referred to in Article 8. (3) Other matters related to the fulfillment of capital provisions for Transforming LKMK or Transforming LKMS as referred to in Article 5 letter c are regulated as follows:
a. for BPR refers to the Financial Services Authority Regulation concerning KPMM and Core Capital Fulfillment for BPR and the Financial Services Authority Regulation concerning Business Activities and Office Network Areas for BPR Based on Core Capital; and b. for BPRS refers to provisions concerning minimum capital provision requirements for BPRS, as well as its implementing regulations.

Article 10
(1) BPR resulting from transformation that has core capital of at least IDR 6,000,000,000.00 (six billion rupiah) up to less than IDR 50,000,000,000.00 (fifty billion rupiah) may conduct business activities and have office networks in the Regency/City where the BPR head office is located and/or Regencies/Cities directly bordering the Regency/City where the BPR head office is located in the same province as referred to in the Financial Services Authority Regulation concerning Business Activities and Office Network Areas for BPR Based on Core Capital. (2) BPR resulting from transformation that has core capital of at least IDR 50,000,000,000.00 (fifty billion rupiah) may conduct business activities and have office networks in the province where the BPR head office is located and in Regency/City areas in other provinces that directly border the province where the head office of the transformed BPR is located as referred to in the Financial Services Authority Regulation concerning Business Activities and Office Network Areas for BPR Based on Core Capital.

Fourth Section
Fulfillment of Board of Directors and Board of Commissioners Provisions
Article 11
(1) Transforming LKMK must fulfill Board of Directors and Board of Commissioners provisions as referred to in Article 5 letter d by referring to the Financial Services Authority Regulation concerning BPR, the Financial Services Authority Regulation concerning Governance Application for BPR, the Financial Services Authority Regulation concerning Work Competency Certification for Members of the Board of Directors and Members of the Board of Commissioners of BPR, and the Financial Services Authority Regulation concerning Fit and Proper Test for Principal Parties of Financial Service Institutions. (2) The fulfillment of BPR Board of Directors members' provisions as referred to in paragraph (1) includes:
a. having integrity, financial reputation, and competence; b. having at least:

1. two members of the Board of Directors for BPR with core capital less than IDR 50,000,000,000.00 (fifty billion rupiah); or
2. three members of the Board of Directors for BPR with core capital of at least IDR 50,000,000,000.00 (fifty billion rupiah);
   c. having formal education at least at the Diploma Three (D3) level;
   d. having a valid work competency certificate issued by LSP; e. having adequate and relevant knowledge in the banking field relevant to their position; f. having experience and expertise in the banking and/or non-bank financial service institution field for at least 2 (two) years; and g. having the ability to conduct strategic management in the context of developing a healthy BPR. (3) Board of Directors members, individually or collectively, are prohibited from holding shares of 25% (twenty-five percent) or more of paid-up capital in banks and/or becoming majority shareholders in non-bank financial service institutions. (4) The fulfillment of BPR Board of Commissioners members' provisions as referred to in paragraph (1) includes:
   a. having integrity, financial reputation, and competence; b. having at least:
3. two members of the Board of Commissioners for BPR with core capital less than IDR 50,000,000,000.00 (fifty billion rupiah); or
4. three members of the Board of Commissioners for BPR with core capital of at least IDR 50,000,000,000.00 (fifty billion rupiah);
   c. having at least:
5. one Independent Commissioner for BPR with core capital of at least IDR 50,000,000,000.00 (fifty billion rupiah) up to less than IDR 80,000,000,000.00 (eighty billion rupiah);
6. fifty percent of the number of Board of Commissioners members are Independent Commissioners for BPR with core capital of at least IDR 80,000,000,000.00 (eighty billion rupiah);
   d. having:
7. adequate and relevant knowledge in the banking field relevant to their position; and/or
8. experience in the banking and/or non-bank financial service institution field; and
   e. having a valid work competency certificate issued by LSP.

Article 12
(1) Transforming LKMS must fulfill Board of Directors and Board of Commissioners provisions as referred to in Article 5 letter d by referring to the Financial Services Authority Regulation concerning BPRS, the Financial Services Authority Regulation concerning Fit and Proper Test for Principal Parties of Financial Service Institutions, and the Financial Services Authority Regulation concerning Work Competency Certification for Members of the Board of Directors and Members of the Board of Commissioners of BPRS. (2) The fulfillment of BPRS Board of Directors members' provisions as referred to in paragraph (1) must follow the process and meet PKK requirements, including:
a. having integrity, financial reputation, and competence; b. having at least 2 (two) members of the Board of Directors;
c. at least 50% (fifty percent) of Board of Directors members, including the President Director, must have operational experience for at least:

1. two years as officials in the field of financing and/or funding in Sharia banking;
2. two years as officials in the field of financing and/or lending in conventional banking and having knowledge in the field of Sharia banking; or
3. three years as directors or equivalent to directors in LKMS;
   d. having formal education at least at the Diploma Three (D3) or junior college level; and e. having a work competency certificate issued by LSP at the latest 2 (two) years from the effective date of appointment. (3) Board of Directors members, individually or collectively, are prohibited from holding shares of 25% (twenty-five percent) or more of paid-up capital in BPRS; (4) The fulfillment of BPRS Board of Commissioners members' provisions as referred to in paragraph (1) includes:
   a. having integrity, financial reputation, and competence; b. having at least 2 (two) members of the Board of Commissioners and at most equal to the number of Board of Directors members. In the event that the number of Board of Directors members is more than 2 (two) members, the number of Board of Commissioners members is at most 3 (three) members;
   c. having:
4. adequate and relevant knowledge in the banking field relevant to their position; and/or
5. experience in the banking and/or non-bank financial service institution field; and
   d. having a work competency certificate from LSP at the latest 2 (two) years from the effective date of appointment.

Fifth Section
Fulfillment of DPS Provisions for BPRS
Article 13
(1) Transforming LKMS must fulfill DPS provisions as referred to in Article 5 letter e by referring to the Financial Services Authority Regulation concerning BPRS.
(2) The fulfillment of DPS provisions as referred to in paragraph (1) includes:
a. meeting integrity, competence, and financial reputation requirements; b. having at least 2 (two) members and at most 3 (three) members of the DPS; and
c. having a recommendation letter from the National Sharia Board of the Indonesian Ulema Council (DSN-MUI).

Sixth Section
Fulfillment of Infrastructure and Human Resources
Article 14
The fulfillment of infrastructure and human resources as referred to in Article 5 letter f refers to the Financial Services Authority Regulation concerning BPR or concerning BPRS, including:
a. fixed assets and inventory, including office buildings, facilities, and office infrastructure; b. adequate information technology;
c. human resources;
d. work systems and procedures; and e. examples of forms or documents to be used for BPR or BPRS operations.

Seventh Section
Fulfillment of Financial Performance Requirements
Article 15
Transforming LKMK or Transforming LKMS must have:
a. Gross Non-Performing Loan (NPL) or Gross Non-Performing Financing (NPF) of at most 1% (one percent) for BPR or BPRS, for the last 6 (six) months; b. Profit in the current year and profit for the previous 2 (two) years;
c. Provision for Write-off of Productive Assets that has been formed of at least equal to the Provision for Write-off of Productive Assets that must be formed in accordance with provisions concerning productive asset quality and formation of Provision for Write-off of Productive Assets for BPR or BPRS;
d. Cash Ratio of at least 4.05% (four point zero five percent) that meets the criteria:

1. healthy in accordance with provisions concerning the health level of BPR for Transforming LKMK; or
2. component rating 2 (two) in accordance with provisions concerning the health level of BPRS for Transforming LKMS.

CHAPTER III
TRANSFORMATION PROCEDURES
First Section
Licensing Stages
Article 16
(1) The license for the change of business activities of LKMK to BPR or LKMS to BPRS is issued in the form of a business license as a BPR or BPRS.
(2) The business license as a BPR or BPRS as referred to in paragraph (1) is issued after Transforming LKMK or Transforming LKMS has fulfilled the provisions as referred to in Articles 5 through 15 of this Financial Services Authority Regulation. (3) The issuance of the business license as a BPR or BPRS as referred to in paragraph (2) is carried out simultaneously with the revocation of the business license as LKMK or LKMS. (4) The business license as a BPR or BPRS and the revocation of the business license as LKMK or LKMS become effective from the date of approval or ratification of the articles of association by the competent authority.

Second Section
Submission of Applications to the Financial Services Authority
Article 17
LKMK or LKMS submits a transformation application to BPR or BPRS to the Commissioners of the Financial Services Authority by attaching:
a. the vision and mission of transforming LKMK or LKMS into BPR or BPRS; b. proof of payment of licensing fees for becoming BPR or BPRS;
c. draft amendment of the articles of association;
d. ownership data:

1. list of prospective shareholders along with details of each share ownership, for BPR or BPRS in the form of a Limited Liability Company (Perseroan Terbatas);
2. list of prospective members along with details of principal savings and mandatory savings, for BPR in the form of a cooperative legal entity.
   e. names and identities of prospective PSP, prospective members of the Board of Commissioners, prospective members of the Board of Directors, and prospective members of the DPS for BPRS, along with supporting documents in accordance with the Financial Services Authority Regulation concerning Fit and Proper Test for Principal Parties of Financial Service Institutions; f. organizational structure; g. financial reports for the current year at the last position reported to the Financial Services Authority before the application submission and financial reports for the previous 2 (two) years, in 2 (two) forms of reports, namely:
3. financial reports of LKMK or LKMS in accordance with the Financial Services Authority Regulation concerning the Conduct of Business by Microfinance Institutions; and
4. financial reports of LKMK that have been converted into monthly BPR reports or financial reports of LKMS that have been converted into monthly BPRS reports in accordance with provisions concerning monthly reports for BPR or BPRS;
   h. Core Capital reports as referred to in Article 9 and Article 10 of this Financial Services Authority Regulation;
   i. financial performance reports as referred to in Article 15;
   j. list of fixed assets, proof of possession of fixed assets, photos of office buildings, and room layouts; k. documents showing the readiness of information technology systems;

l. plans for systems and work procedures, as well as examples of forms or documents to be used;
m. projections of financial statements along with specific financial ratios of the transformed BPR or BPRS for the next 1 (one) year; and n. financial position reports for the end of December from other financial institutions owned by the prospective PSP for the last 2 (two) years.

Article 18
In the event that the Financial Services Authority has provided an electronic licensing system, the submission of transformation license applications shall be submitted through the mechanisms and procedures as regulated in provisions concerning the electronic licensing system.

Third Section
Approval of Transformation Applications

Article 19
(1) The Financial Services Authority grants approval or rejection of the transformation application no later than 40 (forty) working days since the application along with the required documents are received completely. (2) In order to grant approval or rejection as referred to in paragraph (1), the Financial Services Authority conducts among others:
a. research on the completeness and truthfulness of documents; b. assessment of competence and propriety for the prospective PSP, prospective members of the Board of Directors, and prospective members of the Board of Commissioners and/or interviews for prospective members of the Sharia Supervisory Board (DPS).
c. research on the performance of the transformed LKMK or transformed LKMS;
d. research on the performance of the BPR or BPRS and/or the performance of other financial institutions owned by the prospective PSP regarding financial reports as referred to in Article 17 letter g and letter n; and e. examination, if necessary.

Article 20
(1) LKMK that has obtained a business license as a BPR and has become effective is required to clearly state:
a. the legal form and the words "Bank Perkreditan Rakyat" or abbreviated as "BPR", in accordance with the BPR articles of association; and b. the BPR logo on forms, documents, products, offices, and BPR office networks. (2) LKMS that has obtained a business license as a BPRS and has become effective is required to clearly state:
a. the phrase "Bank Pembiayaan Rakyat Syariah" or "BPR Syariah" or abbreviated as "BPRS" in the writing of the name and the iB logo at the corresponding BPRS office; b. the name and type of office status at each office; and
c. the iB logo on forms, documents, products, and BPRS cash service activities.

Article 21
(1) LKMK or LKMS that has obtained a business license as a BPR or BPRS but has not obtained approval or ratification of the change to the articles of association within a period of no later than 30 (thirty) working days calculated from the date of the business license, then the business license as a BPR or BPRS and the revocation of the business license as LKMK or LKMS are declared void and invalid. (2) LKMK or LKMS that has obtained a business license as a BPR or BPRS:
a. is required to conduct business activities as a BPR or BPRS no later than 10 (ten) working days; and b. is prohibited from conducting business activities as LKMK or LKMS, except for the settlement of rights and obligations from business activities as LKMK or LKMS, calculated from the date the business license becomes effective. (3) The implementation of business activities as referred to in paragraph (2) must be reported by the Board of Directors of the BPR or BPRS to the Financial Services Authority no later than 10 (ten) working days from the date of implementation of the business activities.

Article 22
(1) In the event that the transformation application is rejected or the business license as a BPR or BPRS is declared void and invalid, LKMK or LKMS may submit a transformation application again no earlier than 3 (three) years calculated from:
a. the date of the rejection letter; or b. the date the business license as a BPR or BPRS is declared void and invalid.
(2) The resubmission of the transformation application as referred to in paragraph (1) follows the re-process as referred to in CHAPTER III Procedures for Transformation.

Fourth Section
Announcement of Transformation

Article 23
(1) The Board of Directors of the transformed BPR or BPRS is required to announce the transformation of LKMK business activities into BPR or LKMS into BPRS to the public in a local daily newspaper and/or on announcement boards at all BPR or BPRS offices. (2) The announcement as referred to in paragraph (1) is conducted no later than 10 (ten) working days after the business license as a BPR or BPRS from the Financial Services Authority becomes effective. (3) The Board of Directors of the transformed BPR or BPRS is required to submit proof of announcement as referred to in paragraph (1) to the Financial Services Authority no later than 10 (ten) working days after the implementation of the announcement.

CHAPTER IV
VIOLATIONS OF REPORTING OBLIGATIONS

Article 24
(1) Transformed BPR or BPRS is declared late in submitting:
a. reports on the implementation of business activities as referred to in Article 21 paragraph (3); or b. proof of transformation announcement as referred to in Article 23 paragraph (3), if received by the Financial Services Authority no later than 20 (twenty) working days after the deadline for submission of reports or proof of announcement. (2) Transformed BPR or BPRS is declared not to have submitted:
a. reports on the implementation of business activities as referred to in Article 21 paragraph (3); or b. proof of transformation announcement as referred to in Article 23 paragraph (3), if not received by the Financial Services Authority after the deadline for being declared late as referred to in paragraph (1).

CHAPTER V
SANCTIONS

Article 25
Transformed BPR or BPRS that does not fulfill the provisions as referred to in:
a. Article 20, shall be subject to administrative sanctions in the form of:

1. written warnings; and/or
2. a downgrade of one health rating for BPR or a downgrade of the health level for BPRS;
   b. Article 21 paragraph (2) letter a and letter b, shall be subject to administrative sanctions in the form of:
3. written warnings; and
4. a fine of IDR 1,000,000.00 (one million rupiah) per day calculated from the end of the deadline for the obligation to conduct business activities as BPR or BPRS with a maximum total amount of IDR 50,000,000.00 (fifty million rupiah).

Article 26
(1) Transformed BPR or BPRS that violates the provisions on the submission of reports as referred to in Article 21 paragraph (3) and/or proof of announcement as referred to in Article 23 paragraph (3) shall be subject to administrative sanctions in the form of:
a. written warnings; and b. fines of IDR 100,000.00 (one hundred thousand rupiah) each per day of delay with a maximum total amount of IDR 2,000,000.00 (two million rupiah); (2) Transformed BPR or BPRS that is declared:
a. not to have submitted reports as referred to in Article 24 paragraph (2) letter a shall be subject to a fine of IDR 5,000,000.00 (five million rupiah); b. not to have submitted proof of announcement as referred to in Article 24 paragraph (2) letter b shall be subject to a fine of IDR 5,000,000.00 (five million rupiah). (3) In the event that transformed BPR or BPRS has been subject to administrative sanctions in the form of fines due to being declared not to have submitted reports and/or proof of announcement, administrative sanctions in the form of fines due to late submission of reports or proof of announcement shall not be imposed. (4) The imposition of sanctions as referred to in paragraph (1) and (2) does not eliminate the obligation to submit reports as referred to in Article 21 paragraph (3) and/or Article 23 paragraph (3).

CHAPTER VI
CLOSING PROVISIONS

Article 27
Further provisions regarding the transformation of LKMK into BPR or LKMS into BPRS shall be regulated in a circular letter of the Financial Services Authority.

Article 28
This Financial Services Authority Regulation shall come into force on the date of its promulgation.
To ensure that everyone knows it, it is ordered to promulgate this Financial Services Authority Regulation by placing it in the State Gazette of the Republic of Indonesia.

Determined in Jakarta on December 21, 2016
CHAIRMAN OF THE BOARD OF COMMISSIONERS
FINANCIAL SERVICES AUTHORITY, signed
MULIAMAN D. HADAD

Promulgated in Jakarta on December 28, 2016
MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA, signed
YASONNA H. LAOLY

STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2016 NUMBER 297 Copy in accordance with the original Director of Legal Affairs 1 Department of Law signed Yuliana

EXPLANATION
OF
FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 62 /POJK.03/2016
CONCERNING
TRANSFORMATION OF CONVENTIONAL MICROFINANCE INSTITUTIONS INTO RURAL BANKS AND SHARIA MICROFINANCE INSTITUTIONS INTO SHARIA FINANCING RURAL BANKS

I. GENERAL
In order to encourage the growth and development of the national inclusive financial system, the existence of Microfinance Institutions (LKM), both those conducting business activities conventionally and based on Sharia principles, are expected to be able to realize safe, affordable, and easily accessible financial service provision to meet the needs of the public, including communities in rural areas, especially low-income communities and micro-entrepreneurs.

LKM can only provide financial services to the public at most within 1 (one) regency/city so that it can play a role as an instrument for the distribution and increase of community income, as well as improving the welfare of poor and/or low-income communities.

Law Number 1 of 2013 concerning Microfinance Institutions mandates that LKM can expand the reach of financial services to the public outside the regency/city by transforming into a bank. Based on this, there is a need for specific regulations governing the requirements and procedures for submitting transformation applications from LKMK to BPR or LKMS to BPRS.

The scope of this Financial Services Authority Regulation is limited to LKMs that have obtained LKM business licenses from the Financial Services Authority in accordance with Financial Services Authority Regulation Number 12/POJK.05/2014 as amended by Financial Services Authority Regulation Number 61/POJK.05/2015 concerning Business Licensing and Institutionalization of Microfinance Institutions.

II. ARTICLE BY ARTICLE

Article 1
Sufficiently clear.

Article 2
Sufficiently clear.

Article 3
What is meant by "business license" is the full business license as LKMK or LKMS from the Financial Services Authority and does not include conditional business licenses.

Article 4
Paragraph (1)
What is meant by "during the transformation process" is from the date of submission of the transformation application until the date the business license as BPR or BPRS becomes effective or the date of rejection of the application. Letter a Sufficiently clear. Letter b Sufficiently clear. Letter c What is meant by "principles of business activities" is business activities conducted conventionally or based on Sharia principles. Paragraph (2) Sufficiently clear.

Article 5
Sufficiently clear.

Article 6
Sufficiently clear.

Article 7
Sufficiently clear.

Article 8
Sufficiently clear.

Article 9
Paragraph (1)
The calculation of core capital and KPMM ratios refers to provisions concerning BPR KPMM.
What is meant by "Risk-Weighted Assets" is the BPR balance sheet assets given weights according to the risk levels inherent in each asset position as regulated in provisions concerning minimum capital provision requirements and minimum core capital fulfillment for Rural Banks. Letter a What is meant by "core capital" for BPR is main core capital and additional core capital as referred to in Financial Services Authority Regulations concerning Minimum Capital Provision Requirements and Minimum Core Capital Fulfillment for Rural Banks. What is meant by "core capital" for BPRS is core capital as referred to in provisions concerning minimum capital provision requirements and minimum core capital fulfillment for Sharia Financing Rural Banks. Letter b Sufficiently clear. Paragraph (2) Cash deposits can be made, among others, by depositing cash (fresh money) or through transfers and other methods that can be equated with it. Paragraph (3) Sufficiently clear.

Article 10
Sufficiently clear.

Article 11
Sufficiently clear.

Article 12
Paragraph (1)
Sufficiently clear.
Paragraph (2)
Letter a
Sufficiently clear.
Letter b
Sufficiently clear.
Letter c
What is meant by "official" is a person holding a specific position above staff in the structure or organizational apparatus.
Letter d
Sufficiently clear.
Letter e
Sufficiently clear.
Paragraph (3)
Sufficiently clear.

Article 13
Sufficiently clear.

Article 14
Sufficiently clear.

Article 15
Letter a
What is meant by "NPL Gross" is the amount of loans with poor, doubtful, and loss quality before being calculated with Provision for Productive Asset Write-off (PPAP) divided by total loans. What is meant by "NPF Gross" is the amount of financing with poor, doubtful, and loss quality before being calculated with Provision for Productive Asset Write-off (PPAP) divided by total financing. Letter b What is meant by "Profit" is profit that has been calculated with PPAP which must be formed in accordance with provisions concerning productive asset quality and formation of provision for write-off of productive assets for Rural Banks or Sharia Financing Rural Banks. Letter c Sufficiently clear. Letter d Number 1 Cash Ratio shows the ability of BPR to meet its current liabilities measured based on cash + investments in other banks in the form of current accounts and savings minus other banks' savings on BPR divided by immediate liabilities + savings + deposits. Number 2 Cash Ratio shows the ability of BPRS to meet its current liabilities measured based on cash + current accounts + savings in other banks divided by current liabilities including savings, deposits, liabilities to other banks, immediate liabilities, and other liabilities maturing up to 1 (one) month.

Article 16
Sufficiently clear.

Article 17
Letter a
Sufficiently clear.

Letter b
Sufficiently clear.

Letter c
Sufficiently clear.

Letter d
Sufficiently clear.

Letter e
Sufficiently clear.

Letter f
Sufficiently clear.

Letter g
Example 1:
LKM "SEJAHTERA" submitting a Transformation application on February 17, 2017, then the financial reports submitted are the financial position reports for the end of December 2015 and December 2016. Current year financial reports do not need to be submitted with the consideration that LKM financial reports are submitted every 4 (four) months. In the event of changes in LKMK reporting provisions, the current year report adjusts to those changes. Example 2:
LKMS "AMANAH" submitting a Transformation application on July 17, 2017, then the financial reports submitted are the financial position reports for the end of December 2015, December 2016, and April 2017.

Letter h
Sufficiently clear.

Letter i
Sufficiently clear.

Letter j
Sufficiently clear.

Letter k
Sufficiently clear.

Letter l
Sufficiently clear.

Letter m
What is meant by "financial statement projections":

• For BPR, are projections of certain positions of monthly reports referring to provisions concerning monthly reports of Rural Banks.
• For BPRS, are projections of balance sheets, profit and loss projections, and administrative account projections referring to provisions concerning monthly reports of Sharia Financing Rural Banks.
  What is meant by "projections of specific financial ratios":
• For BPR, are projections of financial ratios referring to provisions concerning the financial condition transparency of Sharia Financing Rural Banks.
• For BPRS, are projections of KPMM ratios, projections of NPF ratios, projections of PPAP ratios, projections of Return on Assets (ROA) ratios, projections of operating costs to operating income ratios (BOPO), projections of Cash Ratio (CR), and projections of Financing to Deposit Ratio (FDR).

Letter n
Sufficiently clear.

Article 18
Sufficiently clear.

Article 19
Paragraph (1)
Sufficiently clear.
Paragraph (2)
Letter a
Sufficiently clear.
Letter b
Assessment of competence and propriety for PSP, Directors, and Board of Commissioners involves administrative research and/or clarification in accordance with Financial Services Authority Regulations concerning Competence and Propriety Assessment for Key Parties of Financial Service Institutions. Interviews for DPS are conducted specifically for Transformed LKMS. Letter c Sufficiently clear. Letter d Sufficiently clear. Letter e Examinations can be conducted among others on Transformed LKMK, Transformed LKMS, financial institutions owned by PSP and/or sources of capital deposit funds.

Article 20
Sufficiently clear.

Article 21
Sufficiently clear.

Article 22
Sufficiently clear.

Article 23
Sufficiently clear.

Article 24
Sufficiently clear.

Article 25
Sufficiently clear.

Article 26
Sufficiently clear.

Article 27
Sufficiently clear.

Article 28
Sufficiently clear.

SUPPLEMENT TO THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 5987