Key amendments by Indonesia Financial Services Authority to develop and strengthen finance and venture capital companies
11 April 2025
This article discusses the impact of Regulation No. 46 of 2024 on the Development and Strengthening of Finance Companies, Infrastructure Finance Companies, and Venture Capital Companies (“New Regulation”) issued by the Indonesia Financial Services Authority (Otoritas Jasa Keuangan (“OJK”)) on 30 December 2024. The New Regulation came into effect on 31 December 2024.
The New Regulation implements an omnibus financing policy and amends three OJK regulations: Regulation No. 35/POJK.05/2018 on the Business Activities of Finance Companies (“Regulation No. 35”), Regulation No. 46/POJK.05/2020 on Infrastructure Finance Companies (“Regulation No. 46”), and Regulation No. 34/POJK.05/2015 on Business Licensing and Institutional Framework of Venture Capital Companies (“Regulation No. 34”).
Finance companies
The New Regulation amends Regulation No. 35 to include provisions on capital, soundness, and digital services.
Changes relating to capital
The New Regulation amends the basis for the calculation of a finance company’s capitalisation requirement from equity-based to capital-based encompassing both core and supplementary capital.
The core capital of a limited liability finance company includes paid-up capital, the difference in the value of restructuring transactions of entities under common control, general reserve, retained earnings (profit/loss balance), the current year's profit/loss after tax deductions, treasury shares, paid-up capital funds, and other comprehensive income. The minimum core capital required remains the same as the equity requirement stipulated in Regulation No. 35, that is, a minimum of IDR100,000,000,000.
The core capital of a finance company that operates as a cooperative legal entity consists of the cooperative’s own capital as regulated by OJK Regulation No. 47 of 2024 on Cooperatives in the Financial Sector. The minimum required has been increased by the New Regulation from IDR50,000,000,000 to IDR250,000,000,000.
Composite Rating 2 requirement
The New Regulation stipulates that finance companies must meet a minimum soundness requirement of Composite Rating 2 at all times. OJK Regulation No. 28/POJK.05/2020 on the Assessment of the Soundness of Non-Bank Financial Services Institutions provides that Composite Rating 2 reflects a generally sound condition and indicates that the institution is able to withstand significant adverse effects from changes in business conditions and other external factors.
This stipulation is new - Regulation No. 35 only required that the finance company be, as a minimum, in a sound financial condition.
Digital services
Under both the New Regulation and Regulation No. 35, a finance company is permitted to offer digital financing services. However, the terminology and the scope of such services has changed.
The New Regulation employs the term “digital financing services”, defined as services that use electronic systems to give debtors and/or potential debtors access to financing facilities and/or the services of a finance company’s partners. These services may also be provided independently by debtors and/or potential debtors. The term “digital financing services” is new and wider in scope than its previous iteration - Regulation No. 35 utilised “information technology” and provided that finance companies could provide electronic systems using the internet.
Finance companies that offer digital financing services must own, possess, and control the electronic system utilised for this purpose. It is prohibited from using more than one electronic system per type of device or channel and from having more than one website address for its business operations.
Finance companies may cooperate with other parties, such as e-commerce companies, in providing digital financing services. Such cooperation must be set out in the finance company’s business plan.
Transitional policies
A finance company with a business licence issued by OJK prior to the New Regulation entering into force on 31 December 2024 that has not conducted business activities within three months of the date of the licence will have had its licence revoked by OJK by 31 January 2025.
The obligation for a finance company to own, possess, and control electronic systems used in digital financing services and have a minimum core capital of IDR100,000,000,000 will come into effect on 31 December 2025.
Infrastructure finance companies
The New Regulation amends Regulation No. 46 to include provisions on establishment, ownership, and controlling shareholders.
The requirement set out in Regulation No. 46 relating to an infrastructure finance company (“IFC”) having a minimum paid-up capital of IDR1,000,000,000,000 at the time of its establishment remains unchanged. The obligation to increase the paid-up capital by a minimum of IDR2,000,000,000,000 within a maximum of five years from the date of issuance of the business licence also remains unchanged.
Ownership
The New Regulation introduces cooperatives as a new form of legal entity for IFCs, in addition to limited liability companies. An IFC operating as a cooperative legal entity must comply with the provisions set out in Minister of Cooperatives and Small and Medium Enterprises Regulation No. 9 of 2018 on the Implementation and Guidance of Cooperatives (“Regulation No. 9”).
Foreign legal entities may now own an IFC but only through partnership with the government, regional governments, Indonesian citizens, and/or Indonesian legal entities. This requirement is a new provision that was not addressed in Regulation No. 46. The New Regulation leaves unchanged the requirement that foreign citizens are only allowed to own an IFC via transactions in the capital market. It also make no changes to foreign ownership capital requirements and, as specified in Regulation No. 46, foreign ownership of an IFC, whether direct or indirect, may not exceed 85% of the IFC’s paid-up capital. These foreign ownership restrictions do not apply to an IFC that is a public company whose shares are traded on a stock exchange. However, an IFC that has obtained a business licence before the promulgation of the New Regulation and has direct or indirect foreign ownership exceeding 85% is exempt from these restrictions, provided there is no change in ownership.
Controlling shareholders
The New Regulation requires an IFC to have at least one controlling shareholder. No limitations were previously prescribed by Regulation No. 46.
An IFC in the form of a limited liability company must designate a legal entity, individual, and/or business group as a controlling shareholder if it either:
- holds at least 25% of the nominal value of the issued shares or capital of the IFC and has voting rights; or
- owns less than 25% of the nominal value of the issued shares or capital of the IFC and has voting rights, but there is evidence that the entity or individual exercises control, either directly or indirectly, over the IFC.
An IFC in the form of a cooperative must identify at least one controlling shareholder through a members’ meeting or other mechanism in accordance with Minister of Cooperatives and Small and Medium Enterprises Regulation No. 9/PER/M.KUKM/IX/2015 on Meetings of Members of Cooperatives.
Transitional policies
As of 31 December 2024, IFC independent commissioners who are not Indonesian citizens may serve until the end of their current term but are not eligible for reappointment.
Venture capital
The New Regulations amends Regulation No. 34 to include provisions on form of entity, ownership, and foreign employment.
Form of entity
The New Regulation eliminates limited partnership as a vehicle for a venture capital company (“VCC”), retaining only limited liability companies and cooperatives as allowed forms.
Ownership
The VCC ownership provisions remain unchanged and provide that a VCC structured as a limited liability company can only be owned by the Indonesian state, regional governments, Indonesian citizens, Indonesian legal entities, foreign legal entities, and/or foreign citizens. VCC that are structured as cooperative legal entities must comply with Regulation No. 9.
The New Regulation specifies that a foreign legal entity can only own a VCC in partnership with the government, regional governments, Indonesian citizens, and/or Indonesian legal entities. Foreign citizens can only own a VCC via transactions in the capital market. Regulation No. 34 was silent on the ownership of a VCC by foreign citizens.
The provisions on foreign ownership of a VCC, both direct and indirect, remain unchanged from the restrictions in Regulation No. 34 and are limited to a maximum of 85% of the VCC’s paid-up capital. However, a VCC that obtained a business licence before the New Regulation came into force on 31 December 2024 and that has foreign ownership exceeding 85% of its paid-up capital, whether directly or indirectly, is exempt from this limit. In addition, foreign ownership restrictions do not apply to VCCs that are public companies and trade their shares on the stock exchange.
Foreign employment
A VCC remains able to employ foreigners under the New Regulation as it could under Regulation No. 34. However, VCCs must now include the foreign employees’ intended scope of work in its business plan and obtain approval from OJK. Regulation No. 34 only required the VCC to notify OJK of its intention to employ foreigners in advance.
Transitional policies
Foreigners employed by a VCC prior to the New Regulation entering into force on 31 December 2024 may continue to work until the end of their employment contract and may renew their contract with the approval of OJK.
A VCC with a business licence issued prior to 31 December 2024 that has not commenced its business activities within six months of the issuance of the licence, will have its licence revoked by OJK one month by 31 January 2025.