SEOJK on the Financial Health Level of Sharia Financing

To:

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

COPY

CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 2 /SEOJK.05/2016

CONCERNING

FINANCIAL HEALTH LEVEL OF SHARIA FINANCING

In accordance with the mandate of Article 20 paragraph (4), Article 23 paragraph (7), Article 26 paragraph (6), Article 28 paragraph (3), and Article 29 paragraph (2) of the Financial Services Authority Regulation Number 31/POJK.05/2014 concerning the Conduct of Sharia Financing Business (State Gazette of the Republic of Indonesia Year 2014 Number 366, Supplement to the State Gazette of the Republic of Indonesia Number 5640), it is necessary to regulate implementation provisions regarding the financial health level for Sharia financing companies and Sharia business units in this Financial Services Authority Circular as follows:

I. GENERAL PROVISIONS

1. Sharia Company means a Sharia financing company and a Sharia business unit.

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

3. Sharia Financing Company means a Financing Company whose entire business activities conduct Sharia financing.

4. Sharia Business Unit, hereinafter abbreviated as UUS, is a work unit of the head office of a Financing Company that functions as the head office of offices conducting Sharia financing.

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

6. Sharia Principle means Islamic law provisions based on fatwas and/or Sharia conformity statements from the National Sharia Council of the Indonesian Ulama Council.

7. Productive Assets means all assets owned by the Sharia Company with the intention of obtaining income in the form of Sharia Financing.

8. Financial Health Level of Sharia Financing is the result of assessing the capital adequacy, liquidity, quality of Productive Assets, and financial performance of the Sharia Company.

9. Financial Services Authority, hereinafter abbreviated as OJK, is an independent institution as referred to in the law concerning the Financial Services Authority.

II. ASSESSMENT OF FINANCIAL HEALTH LEVEL

1. Sharia Companies are required at all times to meet the requirements of the Financial Health Level of Sharia Financing.
2. The Financial Health Level of Sharia Financing as referred to in item 1 includes:
   a. capital adequacy ratio; b. quality of Productive Assets;
   c. profitability; and
   d. liquidity.

III. PROCEDURE FOR CALCULATING CAPITAL ADEQUACY RATIO

1. Sharia Companies are required to meet a capital adequacy ratio of at least 10% (ten percent).
2. The capital adequacy ratio of a Sharia Company is the comparison between adjusted capital and adjusted assets.
3. The adjusted capital as referred to in item 2 is the sum of the following capital components:
   a. for Sharia Financing Companies in the form of a limited liability company, the sum of:
   1) adjusted equity consisting of:
   a) paid-up capital; b) additional paid-up capital, which is the sum of:
   (1) share premium/discount;
   (2) equity security issuance costs; and
   (3) others in accordance with financial accounting standards principles; c) difference in transaction value of entities under common control; d) retained earnings/losses; e) 50% (fifty percent) of current year profit/loss after tax; f) treasury stock; and g) other equity components, which is the sum of:
   (1) changes in revaluation surplus;
   (2) exchange differences due to translation of financial statements in foreign currency; (3) gains and losses from re-measurement of available-for-sale financial assets; (4) effective portion of gains and losses of hedging financial instruments in cash flow hedges; and (5) other equity components in accordance with financial accounting standards principles, with taking into account deduction factors consisting of:
   a) deferred tax calculation; b) goodwill; c) other intangible assets; and d) all equity investments in subsidiaries;
   2) subordinated qardh loans of at most 50% (fifty percent) of paid-up capital, meeting the following criteria:
   a) with a term of at least 5 (five) years; b) in the event of liquidation, the claim right applies last among all existing loans; and c) stipulated in the form of a notarial deed agreement between the Financing Company and the lender.

Example:

• PT ABC Finance Syariah has paid-up capital of Rp100,000,000,000.00 and subordinated qardh loans of Rp25,000,000,000.00. Therefore, the amount of subordinated qardh loans that can be added in the calculation of adjusted equity is Rp25,000,000,000.00.
• PT XYZ Finance Syariah has paid-up capital of Rp100,000,000,000.00 and subordinated qardh loans of Rp75,000,000,000.00. Therefore, the amount of subordinated qardh loans that can be added in the calculation of adjusted equity is Rp50,000,000,000.00.

b. for Sharia Financing Companies in the form of a cooperative legal entity, the sum of principal savings, mandatory savings, reserve funds, grants, and undistributed surplus.
c. for UUS, the sum of:
1) adjusted equity consisting of:
a) working capital; b) retained earnings/losses; c) 50% (fifty percent) of current year profit/loss after tax; and d) other equity components, which is the sum of:
(1) changes in revaluation surplus;
(2) exchange differences due to translation of financial statements in foreign currency; (3) gains and/or losses from re-measurement of available-for-sale financial assets; (4) effective portion of gains and losses of hedging financial instruments in cash flow hedges; and (5) other equity components in accordance with financial accounting standards principles, with taking into account deduction factors consisting of:
a) deferred tax calculation; and b) other intangible assets;
2) subordinated qardh loans of 50% (fifty percent) meeting the following criteria:
a) with a term of at least 5 (five) years; b) in the event of liquidation, the claim right applies last among all existing loans; and c) stipulated in the form of a notarial deed agreement between the UUS and the lender, with an amount of at most 50% (fifty percent) of the working capital of the relevant UUS.

Example:

• UUS PT ABC Finance has working capital of Rp100,000,000,000.00 and subordinated qardh loans of Rp25,000,000,000.00. Therefore, the amount of subordinated qardh loans that can be added in the calculation of adjusted equity is Rp25,000,000,000.00.
• UUS PT XYZ Finance Syariah has working capital of Rp100,000,000,000.00 and subordinated qardh loans of Rp75,000,000,000.00. Therefore, the amount of subordinated qardh loans that can be added in the calculation of adjusted equity is Rp50,000,000,000.00.

4. The adjusted assets as referred to in item 2 are the assets of the Sharia Company multiplied by the asset risk weights as stated in Appendix I which is an inseparable part of this Financial Services Authority Circular.
5. In the calculation of adjusted assets, the basis for assessing the nominal value of Productive Assets is outstanding Productive Assets (outstanding principal) minus provisions that have been formed. Outstanding Productive Assets (outstanding principal) is the total receivables, investments, and/or service receivables minus deferred income minus:
   a. unearned revenue; and b. other income and expenses related to financing transactions that are amortized.
6. The measurement of the capital adequacy ratio is documented according to the worksheet format as stated in format 1 of Appendix II which is an inseparable part of this Financial Services Authority Circular.

IV. QUALITY OF PRODUCTIVE ASSETS

1. Sharia Companies are required at all times to maintain the ratio of problematic Productive Assets net of provisions for write-off of Productive Assets at a maximum of 5% (five percent) of total Productive Assets.
2. Productive Assets categorized as Problematic Productive Assets consist of Productive Assets with fair, doubtful, and/or bad quality.
3. The value of Productive Assets is calculated based on outstanding Productive Assets (outstanding principal), which is the total receivables, investments, or service receivables minus:
   a. unearned revenue; and b. other income and expenses related to financing transactions that are amortized.
4. The assessment of Productive Asset quality is established as:
   a. fair; b. special attention;
   c. fair (substandard);
   d. doubtful; or e. bad.
5. The assessment of Productive Asset quality as referred to in item 4 is established based on the factors of accuracy of principal, margin, investment return/profit sharing, and/or service fee (ujrah) payments.
6. The assessment of Productive Asset quality as referred to in item 4 is categorized as follows:
   a. fair if there is no delay or there is a delay in principal, margin, investment return/profit sharing, and/or service fee (ujrah) payments of up to 30 (thirty) calendar days; b. special attention if there is a delay in principal, margin, investment return/profit sharing, and/or service fee (ujrah) payments that has exceeded 30 (thirty) calendar days up to 90 (ninety) calendar days;
   c. fair (substandard) if there is a delay in principal, margin, investment return/profit sharing, and/or service fee (ujrah) payments that has exceeded 90 (ninety) calendar days up to 120 (one hundred twenty) calendar days;
   d. doubtful if there is a delay in principal, margin, investment return/profit sharing, and/or service fee (ujrah) payments that has exceeded 120 (one hundred twenty) calendar days up to 180 (one hundred eighty) calendar days; or e. bad if there is a delay in principal, margin, investment return/profit sharing, and/or service fee (ujrah) payments that has exceeded 180 (one hundred eighty) calendar days.
7. In addition to the factors of accuracy of principal, margin, investment return/profit sharing, and/or service fee (ujrah) payments as referred to in item 5, the assessment of Productive Asset quality for investment financing with a financing value at the time of signing the agreement of Rp3,000,000,000.00 (three billion rupiah) or more, can also be established by considering factors:
   a. consumer's ability to pay; b. consumer's financial performance; and
   c. consumer's business prospects.
8. The assessment of consumer's ability to pay as referred to in item 7 letter a includes assessment of the following components:
   a. availability and accuracy of consumer financial information; b. completeness of Sharia Financing documentation;
   c. compliance with Sharia Financing agreements;
   d. suitability of Sharia Financing fund usage; and e. fairness of the source of obligation payment.
9. The assessment of consumer's financial performance as referred to in item 7 letter b includes assessment of the following components:
   a. profit acquisition; b. capital structure;
   c. cash flow; and
   d. sensitivity to market risk.
10. The assessment of consumer's business prospects as referred to in item 7 letter c includes the following components:
    a. business growth potential; b. market conditions and consumer position in competition;
    c. management quality and labor issues;
    d. support from groups or affiliates; and e. efforts made by consumers to maintain the environment.
11. The guidelines for assessing Productive Asset quality as referred to in items 7, 8, 9, and 10 are conducted based on guidelines as stated in Appendix III which is an inseparable part of this Financial Services Authority Circular.
12. The worksheet for assessing Productive Asset quality as referred to in items 7, 8, 9, and 10 must be conducted using the assessment form as stated in Appendix IV which is an inseparable part of this Financial Services Authority Circular and completed with supporting documents for Productive Asset quality assessment.
13. Sharia Companies may conduct restructuring for consumers experiencing difficulties in paying principal, margin, investment return/profit sharing, and/or service fee (ujrah), but still have the ability to pay and good business prospects.
14. The assessment of Productive Asset quality for financing valued at Rp3,000,000,000.00 (three billion rupiah) or more that is restructured as referred to in item 13 applies the following provisions:
    a. at most equal to the Productive Asset quality before financing restructuring, provided that the consumer has not met the obligation to pay principal installments, margin, investment return/profit sharing, and/or service fee (ujrah) consecutively for 3 (three) periods according to the agreed time; b. may increase at most 1 (one) level from the Productive Asset quality before restructuring, after the consumer has met the obligation to pay principal installments, margin, investment return/profit sharing, and/or service fee (ujrah) consecutively for 3 (three) periods as referred to in letter a;
    c. the quality of restructured Productive Assets can be established based on assessment factors as referred to in item 7, in the event that the implementation of financing restructuring is not supported by adequate analysis and documentation; and
    d. based on assessment factors as referred to in item 7:
    1) after the establishment of Productive Asset quality as referred to in letter b; or
    2) in the event that the consumer does not meet the conditions and/or payment obligations in the financing restructuring agreement, both during and after 3 (three) periods of payment obligations according to the agreed time.
15. Additional Productive Asset quality as part of the financing restructuring package as referred to in item 14 is established equal to the quality of the restructured Productive Assets.
16. The assessment of Productive Asset quality in the context of restructuring as referred to in item 14 must be accompanied and completed with supporting documents for Productive Asset quality assessment.
17. In the event of a difference between the assessment of Productive Asset quality by the Sharia Company and OJK, the Productive Asset quality established by OJK applies.
18. Sharia Companies are required to adjust the quality of Productive Assets in accordance with the assessment of Productive Asset quality established by OJK as referred to in item 12 in reports submitted to OJK.
19. The types of collateral that can be calculated in the calculation of provisions for write-off of Productive Assets are as follows:
    a. cash collateral consisting of:
    1) bank deposits, security deposits, and/or gold;
    2) Bank Indonesia Certificates, Sharia Bank Indonesia Certificates, Government Bonds, sukuk, and/or other securities issued by the government or Bank Indonesia; and/or
    3) government and foreign government guarantees included in the investment grade category;
    b. securities listed on the stock exchange or securities included in the investment grade category from rating agencies recognized by OJK;
    c. motor vehicles, heavy equipment, and inventory;
    d. warehouse receipts; e. machinery and/or electronics that are an integral part of land; f. machinery and/or electronics that are not an integral part of land; g. aircraft or sea vessels with a size above 20 (twenty) cubic meters; and h. land, houses, apartments, commercial houses, and office buildings.
20. Ijarah muntahiya bitamlik objects where waad (option right) has been executed can be calculated as a deduction in the calculation of provisions for write-off of Productive Assets.
21. Cash collateral as referred to in item 19 letter a item 1) and item 2) must meet the following requirements:
    a. can only be liquidated with the approval of the Sharia Company (blocked and accompanied by a power of attorney); b. the blocking period is at least equal to the financing period; and
    c. has a strong legal binding and is legally enforceable.
22. Cash collateral as referred to in item 19 letter a item 3) must meet the following requirements:
    a. is unconditional and irrevocable; b. can be liquidated within a maximum of 5 (five) working days since the claim is submitted, including partial liquidation to pay principal installments, margin, investment return/profit sharing, and/or service fee (ujrah) arrears; and
    c. has a term of at least equal to the financing period.
23. Collateral as referred to in item 19 is accompanied by valid legal documents.
24. Collateral as referred to in item 19 letter b, letter c, letter d, letter e, letter f, letter g, and letter h, must:
    a. be bound according to collateral provisions in accordance with applicable legislation to provide preferential rights for the Sharia Company such as land mortgage, mortgage, fiduciary, or pledge; and b. be protected by Sharia insurance on the financing object with clauses that give the Sharia Company the right to receive insurance compensation in the event of claim payment and have an insurance coverage period of at least equal to the Sharia Financing period.
25. Insurance companies providing Sharia insurance protection for collateral as referred to in item 24 letter b are required to meet the following requirements:
    a. have a business license from OJK; and b. are not subject to business activity restriction sanctions or business activity suspension from OJK.
26. The procedure for calculating collateral value as a deduction for provisions for write-off of Productive Assets is established as follows:
    a. bank deposits, security deposits, Bank Indonesia Certificates, and Sharia Bank Indonesia Certificates are established at nominal value; b. gold is established at market value;
    c. Government Bonds, sukuk, and/or other securities issued by the government or Bank Indonesia are established at market value or in the event there is no market value, established based on fair value;
    d. securities listed on the stock exchange or securities included in the investment grade category are established at a maximum of 50% (fifty percent) of the market value of the securities; e. government and foreign government guarantees included in the investment grade category are established at a maximum of the guarantee value; f. land, houses, apartments, commercial houses, and office buildings are established at a maximum of independent appraisal value, internal appraisal value, acquisition value, or tax object sale value; g. aircraft, sea vessels, motor vehicles, heavy equipment, inventory, warehouse receipts, machinery and/or electronics considered as an integral part of land, and machinery and/or electronics not considered as an integral part of land are established at a maximum of:
    1) 100% (one hundred percent) of independent appraisal value, internal appraisal value, or sales transaction value, if:
    a) independent appraisal or sales transaction is conducted within the last 12 (twelve) months; or b) internal appraisal is conducted within the last 6 (six) months;
    2) 80% (eighty percent) of independent appraisal value, internal appraisal value, or sales transaction value, if:
    a) independent appraisal or sales transaction is conducted more than 12 (twelve) months but not exceeding 24 (twenty-four) months; or b) internal appraisal is conducted more than 6 (six) months but not exceeding 12 (twelve) months;
    3) 60% (sixty percent) of independent appraisal value, internal appraisal value, or sales transaction value, if:
    a) independent appraisal or sales transaction is conducted more than 24 (twenty-four) months but not exceeding 36 (thirty-six) months; or b) internal appraisal is conducted more than 12 (twelve) months but not exceeding 18 (eighteen) months;
    4) 40% (forty percent) of independent appraisal value, internal appraisal value, or sales transaction value, if:
    a) independent appraisal or sales transaction is conducted more than 36 (thirty-six) months but not exceeding 48 (forty-eight) months; or b) internal appraisal is conducted more than 18 (eighteen) months but not exceeding 24 (twenty-four) months;
    5) 20% (twenty percent) of independent appraisal value, internal appraisal value, or sales transaction value, if:
    a) independent appraisal or sales transaction is conducted more than 48 (forty-eight) months but not exceeding 60 (sixty) months; or b) internal appraisal is conducted more than 24 (twenty-four) months but not exceeding 30 (thirty) months;
    6) 0% (zero percent) of independent appraisal value, internal appraisal value, or sales transaction value, if:
    a) independent appraisal or sales transaction is conducted more than 60 (sixty) months; or b) internal appraisal is conducted more than 30 (thirty) months.
27. The value of ijarah muntahiya bitamlik objects where waad (option right) has been executed that can be calculated as a deduction in the calculation of provisions for write-off of Productive Assets is established at:
    a. 100% (one hundred percent) of independent appraisal value, internal appraisal value, or sales transaction value, if:
    1) independent appraisal or sales transaction is conducted within the last 12 (twelve) months; or
    2) internal appraisal is conducted within the last 6 (six) months;
    b. 80% (eighty percent) of independent appraisal value, internal appraisal value, or sales transaction value, if:

1) independent assessment or sales transaction is conducted more than 12 (twelve) months but has not exceeded 24 (twenty-four) months; or
2) internal assessment is conducted more than 6 (six) months but has not exceeded 12 (twelve) months;
c. 60% (sixty percent) of the independent assessment value, internal assessment value, or sales transaction value, if:
1) independent assessment or sales transaction is conducted more than 24 (twenty-four) months but has not exceeded 36 (thirty-six) months; or
2) internal assessment is conducted more than 12 (twelve) months but has not exceeded 18 (eighteen) months;
d. 40% (forty percent) of the independent assessment value, internal assessment value, or sales transaction value, if:
1) independent assessment or sales transaction is conducted more than 36 (thirty-six) months but has not exceeded 48 (forty-eight) months; or
2) internal assessment is conducted more than 18 (eighteen) months but has not exceeded 24 (twenty-four) months;
e. 20% (twenty percent) of the independent assessment value, internal assessment value, or sales transaction value, if:
1) independent assessment or sales transaction is conducted more than 48 (forty-eight) months but has not exceeded 60 (sixty) months; or
2) internal assessment is conducted more than 24 (twenty-four) months but has not exceeded 30 (thirty) months;
f. 0% (zero percent) of the independent assessment value, internal assessment value, or sales transaction value, if:
1) independent assessment or sales transaction is conducted more than 60 (sixty) months; or
2) internal assessment is conducted more than 30 (thirty) months;
28. For Productive Assets with a value of Rp3,000,000,000.00 (three billion rupiah) or more and having collateral as referred to in item 26 letter g or being the value of ijarah muntahiya bitamlik objects where waad (option right) has been executed as referred to in item 27, the assessment of the collateral or ijarah muntahiya bitamlik object where waad (option right) has been executed, which will be used as a reduction in the calculation of the provision for impairment of Productive Assets, must be conducted by an independent appraiser. In the event that there is no independent assessment, the Sharia Company may use the sales transaction value as the basis for collateral assessment by observing the provisions as referred to in item 26 letter g and item 27.
29. For Productive Assets with a value of less than Rp3,000,000,000.00 (three billion rupiah) and having collateral as referred to in item 26 letter g or being the value of ijarah muntahiya bitamlik objects where waad (option right) has been executed as referred to in item 27, the assessment of the collateral to be used as a reduction in the calculation of the provision for impairment of Productive Assets may be conducted by an independent appraiser or internal assessment. In the event that there is no independent assessment or internal assessment, the Sharia Company may use the sales transaction value as the basis for assessment by observing the provisions as referred to in item 26 letter g and item 27.
30. In order to calculate collateral, the Sharia Company must have and implement guidelines for determining the basis for assessment or collateral or the value of ijarah muntahiya bitamlik objects where waad (option right) has been executed as referred to in items 26 and 27.
31. The Sharia Company must re-assess the calculation of the provision for impairment of Productive Assets at least every 6 (six) months for the positions of June and December.
32. The OJK has the authority to recalculate the value of collateral that has been deducted or matters that can reduce the provision in the calculation of the provision for impairment of Productive Assets.
33. The Sharia Company must notify consumers regarding the return of collateral or documents related to collateral no later than 1 (one) month from the date of settlement of Sharia Financing.

34. The measurement of the Productive Asset quality factor is documented according to the worksheet format as contained in Format 2 of Appendix II, which is an integral part of this OJK Circular.
35. The method of calculating the provision is done by calculating the difference between the Productive Asset balance and the collateral value, taking into account the percentage of provision calculation according to the quality of the Productive Asset, with calculation examples as follows:
    Example 1:
    At the beginning of January 2016, Consumer A obtained Sharia Financing (through sales financing) from PT XYZ Finance Syariah with a nominal value of Rp70,000,000.00 with collateral in the form of a motor vehicle valued at Rp100,000,000.00 (representing acquisition price). At the end of June 2019, the remaining Productive Asset balance for Consumer A was Rp50,000,000.00 and Consumer A did not make payments for 9 months (doubtful quality). The Company has never re-assessed the value of the aforementioned collateral. Based on the regulations, the basis for collateral assessment used in the provision calculation is 40% of the collateral value (i.e., the acquisition price) because the calculation date is 40 months from the date of the goods acquisition transaction. The collateral value that can be recognized as a reduction in provision is Rp100,000,000.00 x 40% = Rp40,000,000.00. Thus, the provision for impairment of Productive Assets is (provision amount based on Productive Asset quality) x (Productive Asset balance that can be considered) = 100% x (Rp50,000,000.00 - Rp40,000,000.00) = Rp10,000,000.00. Example 2:
    At the beginning of January 2016, Consumer A obtained Sharia Financing (through sales financing) from PT XYZ Finance Syariah with a nominal value of Rp70,000,000.00 with collateral in the form of a motor vehicle valued at Rp100,000,000.00 (representing acquisition price). At the end of June 2019, the remaining Productive Asset balance for Consumer A was Rp30,000,000.00 and Consumer A did not make payments for 9 months (doubtful quality). The Company has never re-assessed the value of the aforementioned collateral.

Based on the regulations, the basis for collateral assessment used in the provision calculation is 40% of the collateral value (i.e., the acquisition price) because the calculation date is 40 months from the date of the goods acquisition transaction. The collateral value that can be recognized as a reduction in provision is Rp100,000,000.00 x 40% = Rp40,000,000.00. However, because the Productive Asset balance is larger than the collateral value, the collateral value that can be considered is maximally only equal to the Productive Asset balance, which is Rp30,000,000.00. Thus, the provision for impairment of Productive Assets is (provision amount based on Productive Asset quality) x (Productive Asset balance that can be considered) = 100% x (Rp30,000,000.00 - Rp30,000,000.00) = Rp0.00.
V. METHOD OF ASSESSMENT ON PROFITABILITY FACTORS

1. Assessment of the Sharia Company's ability to generate profit consists of several ratios, namely:
   a. Return on Asset
   A ratio used to measure the Sharia Company's ability to generate profit from assets used to support the Sharia Company's operations and capital. b. Return on Equity A ratio used to measure the Sharia Company's ability to generate profit from equity, for Sharia Financing Companies, or working capital of Sharia business units, for UUS.
   c. Operating Expenses to Operating Income
   A ratio used to measure the Sharia Company's ability to measure the level of efficiency and the Sharia Company's ability to carry out its operational activities. d. Net Sharia Financing Income A ratio used to measure the Sharia Company's ability to manage Productive Assets to generate net operating income.

2. The calculation of profitability ratios is established as follows:
   a. Return on Asset
   1) Return on Asset is calculated from the comparison between profit or loss before tax against total assets.
   2) For the calculation of profit or loss before tax, an annualized calculation is used. As an example, for the March report position, the calculation method is as follows:
   (profit or loss before tax per March position / 3) x 12.
   3) Profit or loss before tax per the reporting month position is calculated based on the total income minus total expenses before deducting the estimated income tax.
   4) For the calculation of total assets, the average assets throughout the year are used. As an example, for the March report position, the calculation method is as follows:
   (Sum of total assets from January to March) / 3. b. Return on Equity
   1) Return on Equity is calculated from the comparison of Net Profit against equity.
   2) For the calculation of net profit or loss, an annualized calculation is used. As an example, for the March report position, the calculation method is as follows:
   (net profit or loss per March position / 3) x 12.
   3) Net profit or loss per the reporting month position is calculated based on total income minus total expenses after deducting the estimated income tax.
   4) For the calculation of total equity, the average equity throughout the year is used. As an example, for the March report position, the calculation method is as follows:
   (sum of total equity from January to March) / 3.
   c. Operating Expenses to Operating Income
   1) Operating Expenses to Operating Income is calculated from the comparison of operating expenses against the Sharia Company's operating income.

2) The detail of operating income and operating expense accounts in the calculation of the operating expenses to operating income ratio refers to the OJK Circular regarding monthly reports of Financing Companies.
3) In order to maintain the efficiency of Sharia Company management, particularly related to financing acquisition, incentive costs that can be provided by the Sharia Company to third parties are limited based on a certain percentage of the income to be received related to financing. Income to be received related to financing consists of:
a) profit sharing/margin/service fee income before considering cost of fund; b) insurance income; c) administrative income; and d) commission income.
4) Third-party incentive expenditures related to financing acquisition per financing agreement are limited to 15% (fifteen percent) of the value of income related to financing, including third-party income tax within it.
5) Total third-party incentive expenditures related to financing acquisition are limited to 20% (twenty percent) of the value of income related to financing, including third-party income tax within it.
6) Third-party incentive costs related to financing acquisition include all types of payments to third parties or third-party employees, including commissions, incentives, third-party travel costs, joint promotion costs with third parties, for example, costs for purchasing additional motor vehicle accessories, costs for vehicle delivery promotion, and other expenditures related to financing acquisition paid to third parties.

7) Example of incentive cost limitation based on Sharia Financing disbursement per financing agreement, as regulated in item 5), namely:
a) PT ABC Finance Syariah disburses motor vehicle financing to a consumer in one financing agreement with a price of Rp100,000,000.00. b) Through the financing disbursement, PT ABC Finance Syariah receives income as follows:
(1) margin income of Rp43,000,000.00;
(2) insurance discount of Rp15,000,000.00;
(3) administrative income of Rp1,000,000.00; and (4) commission income of Rp1,000,000.00. c) Thus, the third-party incentive costs related to the acquisition of Sharia Financing that can be provided for the disbursement of financing to the consumer are = (15% x (Rp43,000,000.00 + Rp15,000,000.00 + Rp1,000,000.00 + Rp1,000,000.00)) = Rp9,000,000.00. d) The total incentive costs have considered commissions, incentives, third-party income tax, and other expenditures related to financing acquisition paid to third parties.
8) Example of incentive cost limitation based on total as regulated in item 6), namely:
a) Based on the Monthly Report of the Sharia Financing Company for January 2016, PT ABC Finance Syariah has a profit and loss statement structure with details including the following:
(1) margin income of Rp80,000,000.00;
(2) insurance discount of Rp20,000,000.00;
(3) administrative income of Rp10,000,000.00; and (4) commission income of Rp10,000,000.00.

b) Thus, the total third-party incentive costs related to the acquisition of Sharia Financing that can be provided are = 20% x (Rp80,000,000.00 + Rp20,000,000.00 + Rp10,000,000.00 + Rp10,000,000.00) = Rp24,000,000.00. c) The total incentive costs have considered commissions, incentives, third-party income tax, third-party travel costs, joint promotion costs with third parties, and other expenditures related to financing acquisition paid to third parties. d. Net Sharia Financing Income
1) Net Sharia Financing Income is obtained from the comparison of operating income derived from Sharia Financing including margin, investment results/profit sharing, and/or service fees (ujrah) against the average Productive Assets. Income from Sharia Financing is obtained after being reduced by expenses from the Sharia Company's funding activities.
2) For the calculation of operating income derived from Sharia Financing including margin, investment results/profit sharing, and/or service fees (ujrah), an annualized calculation is used. As an example, for the March report position, the calculation method is as follows:
(Operating Income per March position / 3) x 12.
3) For the calculation of funding acquisition expenses, an annualized calculation is used. As an example, for the March report position, the calculation method is as follows:
(Funding acquisition expenses per March position / 3) x 12.
4) For the calculation of total Productive Assets, the average Productive Assets throughout the year are used. As an example, for the March report position, the calculation method is as follows:
(Sum of total Productive Assets from January to March) / 3.

3. Assessment of the profitability factor is implemented with the following provisions:
   a. Assessment of the Return on Asset ratio is as follows:
   1) Value 1 if the Sharia Company has a Return on Asset of 2% (two percent) or more.
   2) Value 2 if the Sharia Company has a Return on Asset from 1% (one percent) to less than 2% (two percent).
   3) Value 3 if the Sharia Company has a Return on Asset from 0% (zero percent) to less than 1% (one percent).
   4) Value 4 if the Sharia Company has a Return on Asset less than 0% (zero percent).
   b. Assessment of the Return on Equity factor is as follows:
   1) Value 1 if the Sharia Company has a Return on Equity of 6% (six percent) or more.
   2) Value 2 if the Sharia Company has a Return on Equity from 3% (three percent) to less than 6% (six percent).
   3) Value 3 if the Sharia Company has a Return on Equity from 0% (zero percent) to less than 3% (three percent).
   4) Value 4 if the Sharia Company has a Return on Equity less than 0% (zero percent).
   c. Assessment of the operating expenses to operating income ratio factor is as follows:
   1) Value 1 if the Sharia Company has an operating expenses to operating income ratio of less than 70% (seventy percent).
   2) Value 2 if the Sharia Company has an operating expenses to operating income ratio from 70% (seventy percent) to less than 80% (eighty percent).
   3) Value 3 if the Sharia Company has an operating expenses to operating income ratio from 80% (eighty percent) to less than 90% (ninety percent).

4) Value 4 if the Sharia Company has an operating expenses to operating income ratio of 90% (ninety percent) or more.
d. Assessment of the net Sharia financing income ratio factor is as follows:
1) Value 1 if the Sharia Company has a net Sharia financing income ratio of 6% (six percent) or more.
2) Value 2 if the Sharia Company has a net Sharia financing income ratio from 4% (four percent) to less than 6% (six percent).
3) Value 3 if the Sharia Company has a net Sharia financing income ratio from 2% (two percent) to less than 4% (four percent).
4) Value 4 if the Sharia Company has a net Sharia financing income ratio less than 2% (two percent).
4. The Sharia Company is required to meet the profitability ratio with a composite value no higher than 2.5 (two point five). The composite value is calculated using the weighted average method of 4 profitability ratios with a weight of 25% (twenty-five percent) each.
5. The measurement of the profitability factor is documented according to the worksheet format as contained in Format 3 of Appendix II, which is an integral part of this OJK Circular.
VI. METHOD OF ASSESSMENT ON LIQUIDITY
1. Assessment of the level of matching between current assets and current liabilities is established as:
a. Current Ratio
A ratio used to assess the Sharia Company's ability to settle its short-term obligations. The higher the current ratio, the higher the Sharia Company's ability to settle its short-term obligations.

b. Cash Ratio
A ratio used to assess the Sharia Company's ability to pay obligations from cash and securities. The higher the cash ratio, the higher the Sharia Company's ability to pay obligations from cash and securities. The Sharia Company's securities components include checks, giro slips, and promissory notes.
2. The calculation of liquidity ratios is established as follows:
a. Current Ratio
1) Current ratio is calculated from the value of current assets divided by the value of current liabilities.
2) The Sharia Company's current assets consist of cash and cash equivalents, banks, derivative receivables, short-term investments in securities, Productive Assets less than one year, prepaid expenses, and other assets that can be liquidated with a maturity of less than one year.
3) Current liabilities consist of obligations that can be paid immediately, derivative obligations, tax payables, funding that will mature in less than 1 year, and other liabilities that will mature in less than 1 year.
b. Cash Ratio
Cash ratio is calculated from the value of cash plus securities divided by current liabilities. The method of calculating current liabilities is the same as the method of calculating current liabilities in the current ratio.
3. Assessment of the liquidity factor is implemented with the following provisions:
a. Assessment of the current ratio is as follows:
1) Value 1 if the Sharia Company has a current ratio of 150% (one hundred fifty percent) or more.
2) Value 2 if the Sharia Company has a current ratio from 125% (one hundred twenty-five percent) to less than 150% (one hundred fifty percent).
3) Value 3 if the Sharia Company has a current ratio from 100% (one hundred percent) to less than 125% (one hundred twenty-five percent).

4) Value 4 if the Sharia Company has a current ratio of less than 100% (one hundred percent).
b. Assessment of the cash ratio is as follows:
1) Value 1 if the Sharia Company has a cash ratio of 3% (three percent) or more.
2) Value 2 if the Sharia Company has a cash ratio from 2% (one percent) to less than 3% (three percent).
3) Value 3 if the Sharia Company has a cash ratio from 1% (one percent) to less than 2% (two percent).
4) Value 4 if the Sharia Company has a cash ratio from 0% (zero percent) to less than 1% (one percent).
4. The Sharia Company is required to meet the liquidity ratio with a composite value no higher than 2.5 (two point five). The composite value is calculated using the weighted average method of the value of each liquidity ratio with a weight of 50% (fifty percent) each.
5. The measurement of the liquidity factor is documented according to the worksheet format as contained in Format 4 of Appendix III, which is an integral part of this OJK Circular.
VII. VERIFICATION AND VALIDATION BY OJK
1. OJK may conduct verification and validation of the truthfulness and fairness of data that serves as the basis for calculating the factors measuring the Financial Health Level of Sharia Financing prepared by the Sharia Company.
2. In the event that there is a difference between the Financial Health Level of Sharia Financing prepared by the Sharia Company and the Financial Health Level of Sharia Financing resulting from OJK's verification and validation, the Financial Health Level of Sharia Financing established by OJK shall apply.

VII. TRANSITIONAL PROVISIONS
Collateral obtained by the Sharia Company before the establishment of this OJK Circular is exempt from the provisions as referred to in Roman numeral IV item 21, item 22, item 23, item 24, and item 25.
VIII. CLOSING
The provisions in this OJK Circular shall take effect on July 1, 2016.
Established in Jakarta on February 23, 2016
EXECUTIVE HEAD OF SUPERVISOR
OF INSURANCE, PENSION FUNDS,
FINANCING INSTITUTIONS, AND
OTHER FINANCIAL SERVICE INSTITUTIONS
FINANCIAL SERVICES AUTHORITY, sign
FIRDAUS DJAELANI
Copy in accordance with the original
Legal Director 1
Legal Department sign
Yuliana

APPENDIX I
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 2 /SEOJK.05/2016 REGARDING FINANCIAL HEALTH LEVEL OF SHARIA FINANCING

ASSET RISK WEIGHTS
A. SHARIA FINANCING ASSETS
No. Component
Asset Risk Weight
Sharia Financing With
Sharia Guarantee
Asset Risk Weight
Sharia Financing Without
Sharia Guarantee
(1) (2) (3)

1. Sales Financing in the
   Performing and Special Mention Categories
   For Productive Sector Purposes*) a. Murabahah 15% 30% b. Salam 15% 30%
   c. Istishna 15% 30%
   d. Other Sales Financing 15% 30%

2. Sales Financing in the
   Performing and Special Mention Categories
   For Consumer Purposes a. Murabahah 25% 50% b. Salam 25% 50%
   c. Istishna 25% 50%
   d. Other Sales Financing 25% 50%

3. Investment Financing in the
   Performing and Special Mention Categories a. Mudharabah 15% 30% b. Musyarakah 15% 30%
   c. Mudharabah Musytarakah 15% 30%
   d. Musyarakah Mutanaqishoh 15% 30% e. Other Investment Financing 15% 30%

4. Service Financing in the
   Performing and Special Mention Categories a. IMBT 15% 30% b. Ijarah 25% 50%
   c. Qardh 25% 50%
   d. Other Service Financing 25% 50%

5. Other Financing in the
   Performing and Special Mention Categories
   25% 50%

6. Overdue Financing
   a. Less Smooth 50% 100% b. Doubtful 62.5% 125%
   c. Deteriorated 75% 150%
   *) The productive sector refers to activities aimed at producing goods or services that add value and increase income, evidenced by supporting documents.

B. NON-SHARIA FINANCING ASSETS

No.	Component	Risk Weight
1.	Cash and Cash Equivalents	0%
2.	Short-Term Investments in Securities	75%
3.	Equity Participation
a.	Banks	50%
b.	Other Financial Service Companies	75%
c.	Other Companies	100%
4.	Other Assets	100%

Established in Jakarta on 23 February 2016
EXECUTIVE HEAD OF SUPERVISION OF
INSURANCE, PENSION FUNDS,
FINANCING INSTITUTIONS, AND
OTHER FINANCIAL SERVICE INSTITUTIONS
FINANCIAL SERVICES AUTHORITY, signed
FIRDAUS DJAELANI

A copy consistent with the original
Director of Legal Affairs 1
Legal Department signed
Yuliana

APPENDIX II
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 2 /SEOJK.05/2016 CONCERNING THE FINANCIAL HEALTH LEVEL OF SHARIA FINANCING

I. SHARIA FINANCING ASSETS

No.	Sharia Financing Asset Value	Adjusted Asset Risk Weight	Sharia Financing Asset Value	Adjusted Asset Risk Weight
1.	Sales and Purchase Financing in the Smooth and Special Attention Categories for Productive Sector Purposes
a.	Murabahah	15%	0	30%	0
b.	Salam	15%	0	30%	0
c.	Istishna	15%	0	30%	0
d.	Other Sales and Purchase Financing	15%	0	30%	0
2.	Sales and Purchase Financing in the Smooth and Special Attention Categories for Consumer Purposes
a.	Murabahah	25%	0	50%	0
b.	Salam	25%	0	50%	0
c.	Istishna	25%	0	50%	0
d.	Other Sales and Purchase Financing	25%	0	50%	0
3.	Investment Financing in the Smooth and Special Attention Categories
a.	Mudharabah	15%	0	30%	0
b.	Musyarakah	15%	0	30%	0
c.	Mudharabah Musytarakah	15%	0	30%	0
d.	Musyarakah Mutanaqishoh	15%	0	30%	0
e.	Other Investment Financing	15%	0	30%	0
4.	Service Financing in the Smooth and Special Attention Categories
a.	IMBT	15%	0	30%	0
b.	Ijarah	25%	0	50%	0
c.	Qardh	25%	0	50%	0
d.	Other Service Financing	25%	0	50%	0
5.	Other Financing in the Smooth and Special Attention Categories	25%	0	50%	0
6.	Overdue Financing
a.	Less Smooth	50%	0	100%	0
b.	Doubtful	62.50%	0	125%	0
c.	Deteriorated	75%	0	150%	0
Total		0		0

II. NON-SHARIA FINANCING ASSETS

No.	Component	Non-Sharia Financing Asset Value	Adjusted Asset Risk Weight
1.	Cash and Cash Equivalents	0%	0
2.	Short-Term Investments in Securities	75%	0
3.	Equity Participation
a.	Banks	50%	0
b.	Other Financial Service Companies	75%	0
c.	Other Companies	100%	0
4.	Other Assets	100%	0
Total		0	0

FORMAT 1
WORKSHEET - CALCULATION OF ADJUSTED ASSETS

No.	Component	Sharia Financing Assets with Sharia Guarantee	Sharia Financing Assets without Sharia Guarantee
Total Adjusted Assets		0	0

Data Required:
Adjusted Capital =
Adjusted Assets = IDR 0
Ratio Calculation Formula Result
= Adjusted Capital = IDR 0 =
Adjusted Assets IDR 0

WORKSHEET - MEASUREMENT OF CAPITAL RATIO FACTOR

1. Capital Ratio
   #DIV/0!

FORMAT 1

Data Required:
Problematic Productive Assets =
Total Productive Assets =
Ratio Calculation Formula Result
= Problematic Productive Assets = IDR 0 =
Total Productive Assets IDR 0
Productive Asset Quality Ratio
#DIV/0! 1.

WORKSHEET - MEASUREMENT OF PRODUCTIVE ASSET QUALITY FACTOR FORMAT 2

Data Required:
Profit (Loss) Before Tax
Annualized =
Net Profit (Loss) =
Total Assets =
Total Equity =
Operating Expenses =
Operating Income =
Annualized Operating Income =
Annualized Funding Acquisition Costs =
Annualized Total Productive Assets =

COMPONENT	Calculation Formula	Result	Value
= Annualized Profit (Loss) Before Tax	= IDR 0
= Total Assets	= IDR 0
= Net Profit (Loss)	= IDR 0
= Total Equity	= IDR 0
= Operating Expenses	= IDR 0
= Operating Income	= IDR 0
= Annualized Operating Income - Annualized Funding Acquisition Costs	= IDR 0
= Annualized Total Productive Assets	= IDR 0
Composite Value of Profitability Factor	#DIV/0!	4.
Net Sharia Financing Income	#DIV/0!	#DIV/0!
---	---	---
2. Return on Equity	#DIV/0!	#DIV/0!
3. Operating Expenses to Operating Income Ratio	#DIV/0!	#DIV/0!

FORMAT 3
| #DIV/0! | 1. Return on Asset | #DIV/0! |

WORKSHEET - MEASUREMENT OF PROFITABILITY FACTOR

Data Required:
Current Assets =
Current Liabilities =
Cash + Securities =

COMPONENT	Calculation Formula	Result	Rank
= Current Assets	= IDR 0
= Current Liabilities	= IDR 0
= Cash + Securities	= IDR 0
= Current Liabilities	= IDR 0
Composite Value of Liquidity Factor	#DIV/0!

Established in Jakarta on 23 February 2016 signed FIRDAUS DJAELANI

FORMAT 4
WORKSHEET - MEASUREMENT OF LIQUIDITY FACTOR

1. Current Ratio | #DIV/0! | #DIV/0! |

EXECUTIVE HEAD OF SUPERVISION OF
INSURANCE, PENSION FUNDS,
FINANCING INSTITUTIONS, AND
OTHER FINANCIAL SERVICE INSTITUTIONS
FINANCIAL SERVICES AUTHORITY,
2. Cash Ratio | #DIV/0! | #DIV/0! |

A copy consistent with the original
Director of Legal Affairs 1
Legal Department signed
Yuliana

APPENDIX III
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 2/SEOJK.05/2016 CONCERNING THE FINANCIAL HEALTH LEVEL OF SHARIA FINANCING

GUIDELINES FOR PRODUCTIVE ASSET QUALITY ASSESSMENT

Quality	Special	Less Smooth	Doubtful	Deteriorated
1. Consumer's Payment Ability
Availability and accuracy of financial information	• Consumer relationship with Sharia Company is good, consumer always submits financial information regularly and accurately.; • There are up-to-date financial reports and analysis results by the Sharia Company on the financial reports/information submitted by the consumer.	• Consumer relationship with the Sharia Company is quite good and the consumer always submits financial information regularly and is still accurate.; • There are up-to-date financial reports and analysis results by the Sharia Company on the financial reports/information submitted by the consumer.	• Consumer relationship with the Sharia Company is deteriorating and financial information cannot be trusted or there are no analysis results by the Sharia Company on the financial reports/information submitted by the consumer.	• Consumer relationship with the Sharia Company is increasingly deteriorating and financial information is not available or cannot be trusted.; • Consumer relationship with the Sharia Company is very poor and financial information is not available or cannot be trusted.
Completeness of Sharia Financing Documentation	Sharia Financing documentation is complete.	Sharia Financing documentation is complete.	Sharia Financing documentation is less complete.	Sharia Financing documentation is incomplete.; No Sharia Financing exists.
Compliance with Sharia Financing Agreements	No violation of Sharia Financing agreements exists.	Non-principled violation of Sharia Financing agreements.	Violation of main requirements of Sharia Financing agreements that is quite principled.	Principled violation of main requirements in Sharia Financing agreements.; Very principled violation of main requirements in Sharia Financing agreements.
Appropriateness of Fund Usage	• Funds used in accordance with the Sharia Financing application (Sharia Financing usage in accordance with the requested purpose).; • The amount and type of facilities provided are in accordance with needs.; • Sharia Financing extension is in accordance with consumer need analysis.	• Funds used less in accordance with the financing application, but the amount is not material (Sharia Financing usage less in accordance with the requested purpose, but still related).; • The amount and type of facilities provided are larger than needs, but the amount is not material.; • Sharia Financing extension is less in accordance with consumer need analysis.	• Funds used less in accordance with the financing application, with a quite material amount (Sharia Financing usage less in accordance with the requested purpose and not related).; • The amount and type of facilities provided are larger than needs, with a quite material amount.; • Sharia Financing extension is not in accordance with consumer need analysis (extension of financing to hide financial difficulties), with quite material deviations.	• Funds used less in accordance with the financing application, with a material amount (Sharia Financing usage less in accordance with the requested purpose and not related).; • Most fund usage is not in accordance with the financing application (Sharia Financing usage less in accordance with the requested purpose and not related).; • The amount and type of facilities provided are larger than needs, with a very material amount.; • Sharia Financing extension is not in accordance with consumer need analysis (extension of financing to hide financial difficulties), with material deviations.; • Sharia Financing extension without consumer need analysis.
Fairness of Payment Source for Obligations	• Payment source can be clearly identified and agreed upon by the Sharia Company and the consumer.; • Payment source is in accordance with the financing structure/type.; • Repayment scheme is fair (including the provision of grace periods).; • Foreign currency income is sufficient to support the repayment of foreign currency financing.	• Payment source can be identified and agreed upon by the Sharia Company and the consumer.; • Payment source is less in accordance with the financing structure/type to a quite material extent.; • Repayment scheme is quite fair (including the provision of grace periods).; • Foreign currency income is less sufficient to support the repayment of foreign currency financing.	• Payment originates from a source other than the agreed one.; • Payment source is less in accordance with the financing structure/type.; • Payment source is unknown, while the agreed source is no longer possible.; • Repayment scheme is less fair and there is a grace period provision that is not in accordance with the type of Sharia Financing.; • Foreign currency income is not sufficient to support the repayment of foreign currency financing to a quite material extent.	• Payment source is less in accordance with the Sharia Financing structure/type.; • There is no possible payment source.; • Payment source is not in accordance with the Sharia Financing structure/type.; • Repayment scheme is less fair and there is a grace period provision that is not in accordance with the type of Sharia Financing for a quite long period.; • Foreign currency income is not sufficient to support the repayment of foreign currency financing to a material extent.; • Repayment scheme is unfair and there is a grace period provision that is not in accordance with the type of Sharia Financing for a quite long period.; • There is no foreign currency receipt to support the repayment of foreign currency financing.
2. Financial Performance
Consumer Profit Acquisition	• High and stable profit acquisition.; • Profit acquisition is quite good but has the potential to decline.	• Profit acquisition is low.; • Profit is very small or negative.; • Operational losses are financed by asset sales.; • Experiencing significant losses.; • Consumer is unable to meet all obligations and business activities cannot be maintained.
Capital Structure	• Strong capital structure.; • Capital structure is quite good and the owner has the ability to provide additional capital if needed.; • Debt-to-equity ratio is quite high.	• Debt-to-equity ratio is high.; • Debt-to-equity ratio is very high.
Cash Flow	• Strong liquidity and working capital.; • Cash flow analysis shows that the consumer can meet payment obligations for principal, margin, investment results/profit sharing, and/or service fees (ujrah) without support from additional funding sources.	• Liquidity and working capital are generally good.; • Cash flow analysis shows that although the consumer can meet payment obligations for principal, margin, investment results/profit sharing, and/or service fees (ujrah), there are indications of certain problems that if not addressed will affect future payments.	• Liquidity is less and working capital is limited.; • Cash flow analysis shows that the consumer can only pay principal and part of the margin, investment results/profit sharing, and/or service fees (ujrah).; • Additional loans/new Sharia Financing are used to meet maturing obligations.; • Additional loans/Sharia Financing are used to meet maturing obligations to a material extent.	• Liquidity is very low.; • Cash flow analysis shows inability to pay principal, margin, investment results/profit sharing, and/or service fees (ujrah).; • Liquidity difficulties.; • Cash flow analysis shows that the consumer is unable to close production costs.
Sensitivity to Market Risk	• The number of portfolios sensitive to changes in foreign exchange rates and interest rates is relatively small or has been well hedged.	• Some portfolios are sensitive to changes in foreign exchange rates and interest rates but are still controllable.; • Business activities are affected by changes in foreign exchange rates and interest rates.	• Business activities are threatened due to changes in foreign exchange rates and interest rates.; • Business activities are threatened due to fluctuations in foreign exchange rates and interest rates.
3. Consumer Business Prospects
Business Growth Potential	• Business activities have good growth potential.; • Business activities have limited growth potential.	• Business activities show very limited or no growth potential.; • Business activities are declining.; • Business sustainability is highly doubtful and difficult to recover.; • There is a high probability that business activities will cease.
Market Conditions and Consumer Position in Competition	• Stable market not influenced by changes in economic conditions.; • Limited competition, including a strong position in the market.; • Good market position, not much influenced by changes in economic conditions.; • Market share is comparable to competitors.; • Operating at optimum capacity.	• Market position is good, not much influenced by changes in economic conditions.; • Market share is comparable to competitors.; • Operating at almost optimum capacity.	• Market is influenced by changes in economic conditions.; • Market position is quite good but there are many competitors, yet can recover if implementing new business strategies.; • Not operating at optimum capacity.; • Capacity is not at a level that can support operations.	• Market is very influenced by changes in economic conditions.; • Business competition is very tight and company operations experience serious problems.; • Losing market share in line with deteriorating economic conditions.; • Operations are not continuous.
Management Quality and Labor Issues	• Very good management.; • Adequate workforce and never recorded to have experienced labor disputes or strikes, or has experienced minor disputes/strikes that were resolved well.	• Good management.; • Workforce is generally adequate, has experienced labor disputes/strikes that were resolved well but there is a possibility of recurrence.	• Management is quite good.; • Workforce is excessive and there are labor disputes/strikes with a quite material impact on consumer business activities.	• Management is less experienced.; • Workforce is excessive in quite a large number, causing unrest and there are labor disputes/strikes with a material impact on consumer business activities.; • Management is very weak.; • Workforce is excessive in a large number, causing unrest and there are labor disputes/strikes with a material impact on consumer business activities.
Support from Group or Affiliates	• Affiliate companies or group are stable and support the business.; • Affiliate companies or group are stable and do not have a burdensome impact on the consumer.	• Relationship with affiliate companies or group begins to have a burdensome impact on the consumer.	• Affiliate companies or group have had a burdensome impact on the consumer.; • Affiliate companies are very detrimental to the consumer.
Efforts Made by Consumer	• Environmental management efforts to maintain the environment (for large-scale consumers who have an important impact on the environment) are good and achieve results at least in accordance with minimum requirements as regulated in applicable legislation.	• Environmental management efforts are less good and have not reached minimum requirements as regulated in applicable legislation.	• Environmental management efforts are less good and have not reached minimum requirements as regulated in applicable legislation, with quite material deviations.; • The company has not implemented significant environmental management efforts or has implemented efforts but has not reached the requirements as regulated in applicable legislation, with material deviations.; • The company has not implemented significant environmental management efforts or has implemented efforts but has not reached minimum requirements as regulated in applicable legislation, and has the possibility of being sued in court.

Established in Jakarta on 23 January 2016
EXECUTIVE HEAD OF SUPERVISION OF
INSURANCE, PENSION FUNDS,
FINANCING INSTITUTIONS, AND
OTHER FINANCIAL SERVICE INSTITUTIONS
FINANCIAL SERVICES AUTHORITY, signed
FIRDAUS DJAELANI

A copy consistent with the original
Director of Legal Affairs 1
Legal Department signed
Yuliana

APPENDIX IV
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 2 /SEOJK.05/2016 CONCERNING THE FINANCIAL HEALTH LEVEL OF SHARIA FINANCING

APPENDIX IV
WORKSHEET FOR PRODUCTIVE ASSET QUALITY ASSESSMENT

No.	Component	Assessment Condition*	Quality
I. Consumer's Payment Ability
1.	Availability and accuracy of consumer financial information
2.	Completeness of Sharia Financing documentation
3.	Compliance with Sharia Financing agreements
4.	Appropriateness of fund usage
5.	Fairness of payment source for obligations
II. Consumer's Financial Performance
1.	Profit acquisition
2.	Capital structure
3.	Cash flow
4.	Sensitivity to market risk
III. Consumer Business Prospects
1.	Business growth potential
2.	Market conditions and consumer position in competition
3.	Management quality and labor issues
4.	Support from group or affiliates
5.	Consumer efforts to maintain the environment
PRODUCTIVE ASSET QUALITY*

*) Condition is filled based on the actual condition of the Consumer based on the assessment of productive asset quality components based on Appendix II which is an integral part of the OJK Circular. *) Quality is filled with the Consumer's productive asset quality (Smooth/Special Attention/Less Smooth/Doubtful/Deteriorated) for each component by considering the Consumer's condition with reference to Appendix II which is an integral part of the OJK Circular.

*) Productive asset quality is filled with the final result of the productive asset quality assessment for the respective Consumer (Smooth/Special Attention/Less Smooth/Doubtful/Deteriorated) by considering the assessment of productive asset quality for each assessment component.

Established in Jakarta on 23 February 2016
EXECUTIVE HEAD OF SUPERVISION OF
INSURANCE, PENSION FUNDS,
FINANCING INSTITUTIONS, AND
OTHER FINANCIAL SERVICE INSTITUTIONS
FINANCIAL SERVICES AUTHORITY, signed
FIRDAUS DJAELANI

A copy consistent with the original
Director of Legal Affairs 1
Legal Department signed
Yuliana