Amendment to Microfinance-Institution Operations

The Financial Services Authority (Otoritas Jasa Keuangan – “OJK”) has issued Regulation No. 62/POJK.05/2015 (“Amendment”) which amends OJK Regulation No. 13/POJK.05/2014 on Organizing the Business of Microfinance Institutions (“2014 Regulation”).[1] In essence, the Amendment changes the basic provisions which cover microfinance-institution businesses, including the types of business activities which they can engage in, sharia-based financial services, and also solvency ratios.
 
The Amendment is of relevance to already existing microfinance institutions, as well as to parties intending to establish such institutions.
 
Business Activities
The 2014 Regulation sets out three main types of financial services which can be offered to small businesses by microfinance institutions, namely: a) credit or financing facilities; b) savings management; and c) consultation relating to business development. In addition to these activities, the Amendment now allows microfinance institutions to engage in various fee-based activities, including: entering into cooperation agreements with other companies in relation to channel-financing facilities, joint-financing, micro-insurance, and branchless banking.[2]
 
Previously, under the 2014 Regulation, microfinance institutions were not allowed to engage in such fee-based activities.
 
Sharia-Based Financial Services
As a general rule, microfinance institutions may engage in the above-mentioned activities by following either of two sets of guiding principles: 1) conventional principles; or 2) sharia principles. A sharia microfinance institution must always use sharia contracts (akad) when offering financial services, consisting of:[3]