The pawnbroker industry is undoubtedly one of the oldest business sectors in Indonesia. Historically, pawnbrokers were first introduced to the country during the colonial era by the legendary Dutch trading operation, the United East Indian Company, which was also known as Vereenigde Oost-Indische Compagnie (“VOC”). On 28 August, 1746, the first pawnbroker business was established in Indonesia by Bank van Leening, a financial institution established by the VOC in order to provide loans through a pawning system. During this period however, many pawnbroker businesses were established without any sufficient supervision or oversight, which ultimately led to many unfair transactions taking place between businesses and customers.
 
From these historical beginnings, we are now in a period of uncontrolled pawnbroker growth in Indonesia. The flexibility of the contractual process, along with the convenience and various collateral choices offered by pawnbrokers has created a sector which has become a favorite alternative for any members of the public who are looking to access short-term loan facilities. Indeed, pawnbrokers are considerably easier to engage with than other highly regulated loan facilities are, such as those offered by banks, financing companies, and the like. Surprisingly, despite pawnbrokers having now been in existence as long as the nation of Indonesia itself, no comprehensive regulation has previously been introduced in a bid to control this ubiquitous industry. As a result, the pawnbroker industry has become prone to acts of fraud and usury which leave customers in a vulnerable position.
 
In order to overcome this far-from-satisfactory situation, the Financial Services Authority (Otoritas Jasa Keuangan – “OJK”) recently issued Regulation No. 31/POJK.05/2016 on Pawnbroker Businesses (“2016 Regulation”). Through the 2016 Regulation, the establishment and business activities of any pawnbroker businesses are now subject to rigid provisions.This week’s Indonesian Law Digest (ILD) will analyze and discuss various issues relating to pawnbroker businesses, as they are addressed by the 2016 Regulation. The discussion will confine itself to the following topics: