Discover insight through our challenging cases.

Financing Company in Indonesia

“Financing company can be owned up to 85% by Foreigner. It offers a wide option of financing schemes, including but not limited to investment financing, working capital, multipurpose, and others scheme based on approval from OJK. Sharia financing scheme also accommodated by having a Sharia Business Unit (Unit Usaha Syariah / UUS) for conventional financing company or establish sharia financing company from its beginning.”

Traditionally, people would seek a loan from the Bank when they need additional capital for their business. Nowadays, it is also possible to do so from private non-bank entities, one of the alternatives is from a financing company.

Business Activities
According to OJK Regulation No. 35/POJK.05/2018 on the Organization of the Business Activities of Financing Companies (“POJK 35/2018”), financing company or also commonly known as multi finance is an entity that finances the procurement of goods and/or services. As the name suggests, it offers wide options of financing schemes, including but not limited to:

a) Investment Financing
Financing services of capital goods required for business/investment activity, rehabilitation, modernization, expansion, and relocation of business/ investment site which shall be provided for the debtor;
b) Working Capital Financing;
financing service intended for the fulfilment of non-recurring business expenses which must be spent off by the Debtor;
c) Multipurpose Financing;
financing service for the procurement of goods and/ or services required by the debtor for the consumption instead of business purpose or any other productive activities within the agreed financing period;
d) Other financing scheme based on the approval from OJK.

Ownership Capital
According to OJK Regulation No. 28/POJK.05/2014 on the Business Licensing and Institutional Aspect of Financing Companies (“POJK 28/2014”), the financing company can be established as either a Limited Liability Company or as cooperatives. However, there’s a limitation on the maximum foreign shares ownership. While the specific Standard Industrial Classification (KBLI) code varies according to the financing scheme, the ownership of the maximum shares is the same as stipulated in POJK 28/2014, which is 85%. Furthermore, only the followings are allowed to be its shareholders:

a) Indonesian Citizens;
b) Indonesian Business Entities;
c) Indonesian Legal Entities;
d) Foreign Business Entities or Foreign Institutions;
e) The Republic of Indonesia; and/or
f) Regional Governments.

For any shareholders above which are a legal entity, the amount of allowed direct capital investment is limited to the equivalent of their own equity. As a Limited Liability Company, they are also allowed to sell their shares to the public, however only the maximum of 85% of shares that are meant for foreign shareholders can be sold in the stock exchange. The remaining 15% must still be owned either by the Indonesian individual or Indonesian Government and not traded in the stock exchange.

The amount of required capital itself is quite different from a normal company, as Financing company is required to have paid-up capital of IDR 100,000,000,000 (for Limited Liability Company), or IDR 50,000,000,000 (for cooperatives) notwithstanding whether it’s a foreign or local company. Additionally, the company’s name must have the word “financing” or similar words that clearly describe their activities as a financing company.

Establishment Procedure
Just like other business that deals with payment and transfer of fund, the financing company are put under the supervision of OJK. Thus, instead of OSS, the financing company’s license is acquired from OJK. The establishment process is quite straightforward; however, the requirements can be quite complicated. According to POJK 28/2014, to acquire financing company license, the applicant would need to submit their application to OJK by attaching the following requirement:

a) Company Establishment Documents;
b) Detailed list of shareholders or list of members and their contribution for cooperatives;
c) Statement Letters from shareholders on their competence and authenticity of their capitals;
d) Copy of a proof of settlement of Paid-Up Capital in the form of time deposit under the name of a Company at one of the commercial bank or sharia commercial bank in Indonesia;
e) Report on company initial financial positions;
f) Proof of competence certification (through fit and proper test) for the directors, commissioners, and officials one level below Board of Directors;
g) The proof of operational readiness;
h) Business plan for the first two years;
i) Organizational structure, complete with the job description, authority, responsibility, and working procedure;
j) The guidelines for carrying out the implementation of the know-your-customer principle;
k) The guidelines for corporate governance;
l) For PMA Company, they would also need to provide cooperation agreement between the foreign party and Indonesian party.

This application can be submitted in conjunction with the fit and proper test certification as mentioned in point f. By law, OJK will review the application for 30 calendar days and issue an approval or rejection accordingly.

After the financing company has acquired their license, they need to carry out their business activities by no later than two months. While the company is already allowed to operate at this stage, there are still some other post-licensing obligations they need to comply with. Financing company is obligated to report their implementation of business activities to OJK. This report must first be submitted in no later than ten (10) calendar days after the commencement of business activities. Afterwards, the company would need to report to OJK again in the following events:

a) Change of Article of Association;
b) Change of directors, commissioners, shareholders, or Sharia Supervisory Board; and/or
c) Change of address.

Furthermore, the company is also expected to join financing association and credit bureau as appointed by OJK.

Sharia Financing Scheme
Financing company is not only limited to ones with conventional financing scheme, but it is also possible to establish or expand their activities to include sharia financing. There are multiple ways to engage in sharia financing business. For conventional financing company, it is possible to establish a Sharia Business Unit (Unit Usaha Syariah / UUS). UUS would need to have separated work capital and accounting with the main financing company. It also requires a separated sharia financing license from OJK. UUS would still be treated as part of the main financing company until for a year or sooner if their assets have reached 50% of its parent financing company. Afterwards, the UUS is expected to be separated from the main financing company. In the beginning, UUS is only required to have working capital of at least IDR 25,000,000,000, however, after it has been separated from the main financing company, it would need to have paid-up capital of at least IDR 50,000,000,000.

Alternatively, it is also possible to establish a sharia financing company or convert the conventional financing company into sharia financing company. For the latter, however, the company would need to apply for a sharia financing license and can’t use their conventional financing license. Furthermore, it would be required to have at least IDR 50,000,000,000 of equity which must be raised to IDR 100,000,000,000 in 5 years after the conversion. As for the first case, the process to acquire the license is quite similar to normal, however, there are additional required documents, which are:

a) The minutes of the general meeting of shareholders or meeting of members on the appointment of Sharia Supervisory Board members;
b) The document on the contract usage (akad) to be used as referred to in Regulation of the OJK on the organization of sharia financing business.

Author: Benedictus Giovanni

Gaffar & Co., Indonesian Boutique Law Firm which specializing and focus on commercial law areas e.g. Capital Market & Financial Services.

For further queries and information, contact us:
+62 21 5080 6536 | |

Share on linkedin