OJK Issues Microfinance Implementing Regulations

After the success of the microfinance program called the People’s Business Loan (Kredit Usaha Rakyat – “KUR”)[1] and the enactment of Law No. 1 of 2013 on Microfinance Institutions (“Microfinance Law”), the Financial Services Authority (Otoritas Jasa Keuangan – “OJK”) continues the government relay to provide wider access to financial services for micro, small and medium enterprises.

To this end, the OJK has recently issued the following three regulations, each detailing the legal framework for the so-called microfinance institutions (lembaga keuangan mikro), and also to implement the Microfinance Law:

  1. OJK Regulation No. 12/POJK.05/2014 on Business Licensing and Organization of Microfinance Institutions (“Licensing Regulation”);
  2. OJK Regulation No. 13/POJK.05/2014 on Business Implementation of Microfinance Institutions (“Activity Regulation”); and
  3. OJK Regulation No. 14/POJK.05/2014 on Development of and Supervision over Microfinance Institutions (“Supervision Regulation”).

These regulations together set out provisions regarding the organization, licensing and business activities of microfinance institutions, as well as the development direction of and supervision measures for microfinance institutions by the government.

However, before further elaboration on such matters, it is first important to understand what microfinance institutions are.

So, What are Microfinance Institutions?

Microfinance institutions are mainly characterized by their modest capital and operational area, and limited scope of business activities.

While the capital requirement for microfinance institutions vary according to the size of their operational area, the capital requirement only varies between IDR 50 million to IDR 500 million (this will be further elaborated below), which is quite boutique compared to capital requirement of insurance companies (IDR 40 billion at least), and the operational area is limited to within one regency (kabupaten) or city (kota).

The allowed business activities of microfinance institutions are also limited. Microfinance institutions are permitted to carry out the following business activities in a conventional manner or based on sharia principles:[2]

  1. Business development and community empowerment services;
  2. Disbursing loans and financing facilities;
  3. Managing deposits; and
  4. Providing business development consultation services.

Microfinance institutions, however, are prohibited to:[3]

  1. Receive giro deposits or carrying out cross-border payments;
  2. Carry out business activities in foreign currencies;
  3. Act as an insurance guarantor or underwriter;
  4. Provide loans or financing facilities to other microfinance institutions other than those within the same regent or city experiencing liquidity issues; and
  5. Disburse loans or financing outside its operational area.

Form, Ownership, Capital, Financing and Mandatory Transformation

The following elaboration will delve into details on microfinance institutions, including provisions on the form and capital requirements of microfinance institutions, as well as limitations on the ownership of and financing sources for microfinance institutions.

Another interesting aspect that will be discussed is the mandatory transformation of microfinance institutions into rural banks upon fulfilling certain requirements relevant to their operational area and capital.

Form and Ownership: No Foreign

Microfinance institutions are required to be incorporated as a limited liability company (perseroan terbatas)[4] or cooperative (koperasi).[5] In regard to ownership, only the following parties are allowed to hold ownership of a microfinance institution:[6]

  1. Indonesian citizens;
  2. Village or sub-district owned enterprises (badan usaha milik desa/kelurahan);[7]
  3. Regent or City Regional Government; and
  4. Cooperatives.

A microfinance institution in the form of a limited liability company must at least subscribe 60 percent of its shares to the respective Regent or City Government or business entities owned by the local village or sub-district. The remaining shares can only be owned by Indonesian citizens or cooperatives, of which ownership by Indonesian citizens cannot exceed 20 percent.[8]

Microfinance institutions are strictly prohibited from being owned by foreign parties, whether directly or indirectly. Foreign business entities, whether entirely or partially owned by foreign citizens, are included into the scope of this prohibition.[9]

Capital: Different Size, Different Amount

The minimum amount of capital[10] that must be held by a microfinance institution upon establishment differs depending on their operational area. For microfinance institutions with an operational area within a village (desa) or sub-district (kelurahan), the minimal capital requirement is stipulated at IDR 50 million, whereas those with an operational area within a district (kecamatan) must fulfill a minimum capital requirement of IDR 100 million. A microfinance institution with an operational area within an entire regent or city, on the other hand, must have at least IDR 500 million in paid-capital or principal and mandatory reserves.[11]

It is important to note that this capital cannot derive from loans, and at least half of the said capital must be allocated as working capital.[12]

Source of Financing: No Foreign?

As briefly mentioned above, microfinance institutions may only accept financing sources in the form of liquid equity, bank deposits, loans and grants.[13]

Loans must derive from Indonesian citizens or entities, and are required to be contained in a loan agreement.[14] It is, however, unclear whether or not microfinance institutions may other financing sources (such as equity, bank deposits and grants) from foreign entities.[15]

Rural Banks: Final Form of Microfinance Institutions

There are two circumstances that obligate a microfinance institution to transform into a rural bank. The first is simply if their operational area expands into another regent or city. The other circumstance is if they exceed the capital requirements applicable to rural banks, specifically if they:[16]

  1. Have equity five times greater than the minimum paid-in capital for rural banks[17] or sharia rural banks;[18] and
  2. Rotate third party funds twenty five times greater than the minimum paid-in capital requirement for rural banks or sharia rural banks.

Licensing Procedure

For those interested in establishing a microfinance institution, below is a glimpse on the licensing procedure for microfinance institutions.

Choose between Conventional or Sharia-Based

Microfinance institutions must choose to carry out their business activities based on conventional practices or sharia-based principles. This must be reflected in their deed of establishment (akta pendirian) prior to securing a business license from the OJK in order to commence their business activities.[19]

Business License

In order to secure a business license from the OJK, the board of directors of a microfinance institution must submit a completed application form[20] to the OJK along with the following support documents:[21]

  1. Copy of their deed of establishment;
  2. Information regarding the board of directors and commissioners, as well as the board of sharia supervisors (for sharia-based microfinance institutions);[22]
  3. Information on the shareholders (for limited liability companies) or members (for cooperatives);
  4. Specifically for sharia-based microfinance institutions, recommendation letter for the appointment of the board of sharia supervisor members from the National Sharia Board of the Indonesian Ulema Council (Dewan Syariah Nasional Majelis Ulama Indonesia);
  5. Document detailing the organizational structure and management of the microfinance institutions that indicate credit decision-making and collections functions, as well as administration matters;
  6. Work system and procedure of the microfinance institution;[23]
  7. Short-term work plan for the first two years since acquiring a business license from the OJK;[24]
  8. Proof of time deposit repayment as evidence of the capitalization of the microfinance institution; and
  9. Proof of operational preparations, such as a list of fixed assets and inventory, proof of office ownership or lease and application forms to be used for business operations.

Upon receipt, the OJK has 40 business days to approve or reject the application. Only approved applications will be granted with a business license by the OJK.[25]

Within 4 months since receiving a business license from the OJK, the respective microfinance institution must commence business operations. Failing to do so will result in the business license of the microfinance institution being revoked by the OJK.[26]

Furthermore, it is also important to note that before 20 business days since doing so, the said commencement of business operations must be reported to the OJK, which must use the report format provided in Annex II to the Licensing Regulation.[27]

Reporting Obligations

After commencing operations, a microfinance institution is officially under government scrutiny by way of mandatory reporting obligations. There are certain events that will trigger a reporting obligation to the OJK, and there is also an obligation for microfinance institutions to periodically submit a financial statement to the OJK, both of which will be explained below.

Triggering Events

Other than the mandatory reporting in commencing business operations, any of the following will also trigger a reporting obligation to the OJK:[28]

  1. For limited liability companies include changes to shareholding composition, board of directors and commissioners, board of sharia supervisors (specifically for sharia-based microfinance institutions) and capital structure (includes authorized, paid-in and issued capital);
  2. For cooperatives, only changes to the management are to be reported; and
  3. Change to the name of the microfinance institution.

The report for any of the abovementioned circumstances must be submitted to the OJK within 20 business days of being approved by the appropriate government institution (for example, shareholding changes of limited liability companies are to be reported or approved by the Minister of Law and Human Rights).[29]

Periodic Submission of Financial Statement

Microfinance institutions are obligated to submit their financial statement every 4 months to the OJK. The time period of each financial statement, along with the respective deadline, is as follows:[30]

  1. 1 January – 30 April that must be submitted on 31 May;
  2. 1 May – 31 August that must be submitted on 30 September; and
  3. 1 September – 31 December that must be submitted on 31 January.

Failing this reporting obligation will result in administrative fines that vary depending on the operational area of the microfinance institution:[31]

  1. Operational area within a village or sub-district will be imposed with an administrative fine of IDR 10 thousand for each day of delay (maximum of IDR 500 thousand);
  2. Operational area within a district will be imposed with an administrative fine of IDR 20 thousand for each day of delay (maximum of IDR 1 million); or
  3. Operational area within a village or sub-district will be imposed with an administrative fine of IDR 50 thousand for each day of delay (maximum of IDR 2.5 million);

Administrative fines must be deposited to the OJK, and those that remain outstanding must be classified as debt under the financial statement of the respective microfinance institution.[32]

Government Supervision

Lastly, the below elaboration will focus on government measures to develop and supervise microfinance institutions, including the procedure to punish non-compliance to the Licensing Regulation or Activity Regulation.

The OJK: the Microfinance Institutions’ Watcher

Development efforts, regulative controlling, and supervision of microfinance institutions are led by the OJK in coordination with the Minister of Cooperatives and Small and Medium Enterprises and the Minister of Internal Affairs.[33]

A number of functions are, however, delegated to Regent or City Governments, including:[34]

  1. Receiving and analyzing financial statements and other forms of reports from microfinance institutions;
  2. Conducting follow-ups to reports from microfinance institutions;
  3. Drawing up inspection work plans, carrying out inspections of microfinance institutions, and conducting follow-ups to the results of the said inspections;
  4. Imposing administrative sanctions (other than business license revocations and fines); and
  5. Carrying out bailouts for microfinance institutions with liquidity issues.

It is important to note that these functions are not automatically delegated by the OJK. These functions are only delegated to Regent or City Governments that have:[35]

  1. Appointed an official in charge of carrying out development efforts and supervision over microfinance institutions (this official must participate in training events held by the OJK); and
  2. Prepared operational support facilities that are required to supervise microfinance institutions.

If the respective Regent or City Government has not carried out the above actions, a third party will be appointed by the OJK to carry out the abovementioned functions. This third party must at least fulfill the following criteria:[36]

  1. Willing and have adequate facilities to carry out the government development efforts and supervision of microfinance institutions in accordance with the Microfinance Law; and
  2. Possess in-depth knowledge and understanding of microfinance institutions.

Administrative Sanctions: Starts with Written Warning

Non-compliance to the Licensing Regulation or Activity Regulation has the same consequence. For the first instance, a written warning will be issued, which has a validity period of 40 business days. Failing to remedy the non-compliance within this time period will result in another written warning. Upon the expiration of the third written warning (or 120 business days after the issuance of the first written warning), the OJK will request the shareholders or members of the microfinance institution to replace the current management (board of directors or administrator).[37]

Failing to fulfill this request within 6 months of receiving a notification from the OJK to do so will result in the permanent termination of the management and an appointment of a temporary replacement until a general meeting is convened to appoint a replacement of the previous management.[38]



[1] The KUR, which was launched by the Susilo Bambang Yudhoyono administration in 2007, focused on providing loans and credit programs for micro, small and medium enterprises, as well as cooperatives. These loans and credit programs were guaranteed by the Business Development Facility Public Service Company (Perusahaan Umum Sarana Pengembangan Usaha), which has changed its name to the Indonesian Credit Guarantee Public Service Company (Perusahaan Umum Jaminan Kredit Indonesia, or commonly known as Jamkrindo) in 2008, and the Indonesian Credit Insurance (Asuransi Kredit Indonesia). The KUR continues to be provided by several major state-owned banks, including PT Bank Mandiri Tbk, PT Bank Negara Indonesia Tbk, PT Bank Tabungan Negara, and PT Bank Rakyat Indonesia Tbk. See: Tempo, “Kredit Usaha Rakyat Diluncurkan,” 5 November 2007

[2] Activity Regulation, Art. 2

[3] Activity Regulation, Art. 28

[4] Limited liability companies under Indonesian legislation are stipulated under Law No. 40 of 2007 on Limited Liability Companies (“Limited Liability Law”)

[5] Cooperatives are regulated primarily under Law No. 25 of 1992 on Cooperatives (“Cooperatives Law”). The most recent legislation governing cooperatives, namely Law No. 17 of 2012 on Cooperatives, was revoked by Constitutional Court Decision No. 28/PUU-XI/2013. See: Hukumonline, “Cooperatives Law Revoked: Out with the New, In with the Old,” 2 June 2014

[6] Licensing Regulation, Art. 3

[7] These entities are formally known as Village Owned Business Entity (Badan Usaha Milik Desa) and Sub-District Owned Business Entity (Badan Usaha Milik Kelurahan). Village or Sub-District Owned Business Entities are governed under Law No. 6 of 2014 on Villages and Minister of Internal Affairs Regulation No. 39 of 2010 on Village Owned Business Entities

[8] Licensing Regulation, Art. 2

[9] Licensing Regulation, Art. 4

[10] This refers to the paid-in capital (modal disetor) for limited liability companies, and principal (simpanan pokok) and mandatory reserves (simpanan wajib) and grants (hibah) for cooperatives. See: Article 9 of the Licensing Regulation. Also see: Article 41 (2) of the Cooperatives Law, and Official Elucidation of Article 41 (1) of the Limited Liability Law

[11] Licensing Regulation, Art. 9 (1) and (2)

[12] Licensing Regulation, Art. 9 (3) and (4)

[13] Activity Regulation, Art. 12 (1)

[14] Activity Regulation, Art. 12 (1)

[15] For further clarity, Article 12 (2) of the Activity Regulation states that: “Microfinance institutions are prohibited from accepting loans as mentioned in paragraph (1) letter c except from Indonesian citizens and/or business entities that are established and operating in the territory of the Republic of Indonesia based on a loan agreement”

[16] Licensing Regulation, Art. 26 (1)

[17] Rural banks are regulated under OJK Regulation No. 20/POJK.03/2014 on Rural Banks (minimum capital requirement between IDR 4 billion and IDR 14 billion)

[18] Sharia rural banks are governed under Bank Indonesia Regulation No. 6/17/PBI/2004 on Sharia Rural Banks, as amended by Bank Indonesia Regulation No. 8/25/PBI/2006 (minimum capital requirement between IDR 500 million and IDR 2 billion)

[19] Licensing Regulation, Art. 5 (1) and (2)

[20] The format of this application form is provided in Annex I to the Licensing Regulation

[21] Licensing Regulation, Art. 5 (3)

[22] Note that one of the directors must have at least 1 year experience relevant to the business activities of the microfinance institution in question. Affidavit or written evidence indicating this matter must be attached to the application. For complete details regarding the information on the management of a microfinance institution that must be submitted to OJK, see: Article 5 (3) (b) of the Licensing Regulation

[23] This document must at least cover the systems to provide loans or financings, receiving deposits, demand payment from borrowers or financing recipients, and procedures to settle non-performing loans and deposit closures. See: Article 5 (3) (f) of the Licensing Regulation

[24] This short-term work plan must at least provide: 1) data regarding other microfinance institutions within their operational area, 2) business activity plan (projections of deposits, and loan distributions and financing), 3) economic potential of their operational area, and 4) projections of financial performance and position (triennially). See: Article 5 (3) (g) of the Licensing Regulation

[25] Licensing Regulation, Art. 6 (1) and (5)

[26] Licensing Regulation, Art. 7 (1) and (2)

[27] Licensing Regulation, Art. 7 (3)

[28] Licensing Regulation, Arts. 13 (1) and (2), and 14 (1)

[29] Ibid. Also see: Articles 21 (3), 42, 46, and 56 of the Limited Liability Law

[30] Activity Regulation, Art. 25 (1) and (2)

[31] Activity Regulation, Art. 31 (2)

[32] Activity Regulation, Art. 31 (4) and (5)

[33] Supervision Regulation, Art. 2 (1) and (2)

[34] Supervision Regulation, Art. 5 (1)

[35] Supervision Regulation, Art. 3 (2)

[36] Supervision Regulation, Art. 4

[37] Licensing Regulation, Arts. 27 (1), (2) and (3), and 28

[38] Licensing Regulation, Arts. 27 (4) and (5), and 28


The information contained in this website is for general information purposes only, and is not intended to be taken as legal advice or opinion or replace a formal consultation with a legal counsel.

The views and opinions expressed in this website, unless expressly stated otherwise, are my own and written by me. They do not represent the views or opinions of my current workplace nor any other parties that I may have connections with.

The information contained in this website is compiled from various reliable sources. However, despite best intentions to keep the information updated and correct, I do not make any representations or warranties of any kind whatsoever, express or implied, regarding the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

In no event will I be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this website.

Through this website you are able to link to other websites which are not under my control, whether with respect to their nature, content or availability. The inclusion of any links does not necessarily imply a recommendation or endorse the views expressed within them.

Every effort is made to keep the website online and running smoothly. However, I shall not be responsible or liable for the website being temporarily unavailable due to technical issues beyond my control.


Leave a Reply

Your email address will not be published. Required fields are marked *