Types of Financing Business in Indonesia: An Overview

Banking & Finance
Written By ARMA Admin
 

Authors

Authors
Dewi Arum
Dewi Arum

Partner

Maureen Linus
Maureen Linus

Associate

Under Law No. 4 of 2023 concerning Development and Strengthening of the Financial Sector (the “P2SK Law”), the Government introduced and specifically groups the concept of “financing service business”. This category is designed to encompass existing financing activities currently operating within Indonesia’s financial system, namely: (i) multifinance companies; (ii) venture capital companies; (iii) infrastructure finance companies; (iv) IT-based peer-to-peer funding services; (v) pawnshops; and (vi) other financing schemes regulated by the Financial Service Authority (Otoritas Jasa Keuangan – “OJK”). [1] Collectively, these businesses are referred to as “PVML”.

The introduction of a dedicated regulatory framework for financing service businesses at the statutory level reflects the Government’s forward-looking and anticipatory approach to the continued evolution of financing models in Indonesia. In this context, the P2SK Law adopts a principle-based and activity-based regulatory approach. This structure is designed to ensure regulatory flexibility, allowing the framework to remain adaptive to the emergence of new financing business models and innovation over time.

While financing service businesses are expected to continue evolving and expanding in scope, this ARMA Update focuses on the existing categories of financing businesses currently recognised and regulated in Indonesia. In particular, we focus specifically on their permitted activities, principal regulatory constraints, and capital requirements as a foundation for understanding the broader PVML landscape.

Multifinance

Multifinance companies (“Multifinance”) are regulated as providers of financing for goods and/or services to the public, [2] as such, fall within the category of financing service businesses (PVML) as recognized under Article 106 paragraph (1) point (a) of P2SK Law.

The operation of Multifinance is primarily governed under OJK Regulation No. 35/POJK.05/2018 concerning Operation of Financing Companies, as amended (“POJK 35/2018”), while licensing requirements are governed under OJK Regulation No. 47/POJK.05/2020 concerning Business Licensing and Institutional Framework of Financing Companies and Sharia Financing Companies, as amended (“POJK 47/2020”). Its scope of activities comprises the following:

  1. Investment Financing, which refers to financing of capital goods along with the services required for business and/or investment activities, rehabilitation, modernisation, expansion, or relocation of business and/or investment premises, which are provided to the debtor.

  2. Working Capital Financing, which refers to financing to meet expenditure needs that are exhausted within a single cycle of the debtor’s business activities.

  3. Multi-Purpose Financing, which refers to financing for goods and/or services required by the debtor for personal use or consumption, and not for business purposes or productive activities, within the agreed financing period.

  4. Other financing activities as approved by the OJK.

Multifinance may be established as a limited liability company (Perseroan Terbatas – “PT”) or cooperatives. [3] At the time of establishment, a Multifinance company must have a minimum paid-up capital of IDR 250 billion (approximately USD16.1 million), regardless of whether it is established as a PT or cooperatives. [4]

During its operation, the company must comply with prudential requirements, including the maintenance of minimum core capital of IDR 100 billion (approximately USD 6.5 million), [5] as well as fulfilment of the required level of financial soundness (tingkat kesehatan), gearing ratio limits, capitalisation ratio, core capital to paid-up capital ratio, and net non-performing financing ratio as regulated in POJK 35/2018.

With respect to foreign ownership, participation by a foreign legal entity may only be conducted in partnership with the Government of Indonesia, a Regional Government, and/or Indonesian individuals and/or legal entities. Meanwhile, foreign individual may acquire ownership solely through capital market transactions. [6] The applicable foreign ownership limitation is subject to the prevailing government regulation. However, during the transitional period, foreign ownership-whether direct or indirect-must not exceed 85% of the company’s paid-up capital. [7]

The regulatory framework further introduces more detailed provisions on digital financing services, defined as services that utilise electronic systems to provide debtors and/or potential debtors with access to financing facilities and/or services of a finance company’s partners. These services may include, among others, marketing activities, submission of financing applications, and monitoring of instalment payments. [8]

Multifinance companies providing digital financing services must own, possess, and control the electronic system used for this purpose, and are prohibited from employing more than one electronic system per device type or channel or from maintaining more than one business website address. [9]

In addition, the OJK has specifically regulated the provision of Buy Now Pay Later (“BNPL”) business model through OJK Regulation No. 32 of 2025 concerning Implementation of Buy Now Pay Later (“POJK 32/2025”), of which is only permitted to be conducted by commercial banks and Multifinance. [10] This BNPL model is intended to provide financing for customers’ non-cash purchases of products and/or services through electronic system, without requiring collateral and subject to a predetermined limit. [11]

Venture Capital (Modal Ventura)

Venture capital companies (“VCC”) are financing institution that conduct business activities in the form of: (i) equity participation, and/or (ii) financing for a specific period, in each case for the purpose of supporting business development. [12]

The operation of VCC is primarily governed by OJK Regulation No. 25 of 2023 concerning Operation of Venture Capital Companies and Sharia Venture Capital Companies (“POJK 25/2023”), whereas for the requirements for its licensing is regulated under OJK Regulation No. 34/POJK.05/2015 concerning Business Licensing and Institutional Framework of Venture Capital Companies, as amended (“POJK 34/2015”).

The specific scope of business of VCC comprises the following: [13]

  1. capital participation (equity investment);
  2. participation through the purchase of convertible bonds;
  3. financing through the purchase of debt securities issued by the business partner at the early start-up stage and/or business development stage; and/or
  4. financing.

Furthermore, VCC may also manage venture funds in the form of collective investment contracts, subject to obtaining the relevant OJK licence. [14]

In conducting the aforementioned business, VCC are further categorized as follows:

Company Name Scope of Business and/or Activities
Venture Capital Corporation
  1. capital participation;
  2. participation through the purchase of convertible bonds; and/or
  3. management of venture funds.

It may also conduct the businesses of Venture Debt Corporation as mentioned below.[15]
Venture Debt Corporation
  1. financing through the purchase of debt securities issued by the business partner at the early start-up stage and/or business development stage; and/or
  2. financing.

The above business activities of VCC must be ensured to be allocated for the development of productive business of their business partner and/or customers. [16] In addition, VCC may conduct a fee-based services and/or other activities, subject to prior approval from the OJK. [17]

Specifically for venture debt corporations, their financing activities are limited to micro, small, or medium enterprises and/or early-stage or growth-stage business partners. [18] Furthermore, they may also permitted to enter into financing cooperation arrangements with other parties (including companies, microfinance institutions, Multifinance, banks, and/or other permitted financial institutions) in the form of channelling financing or joint financing. [19]

With respect to establishment, following the enactment of the P2SK Law, the permitted legal forms of a VCC are limited to limited liability companies and cooperatives, thereby eliminating the use of limited partnerships. [20] Where a VCC is established as a cooperative, it must comply with the prevailing regulations governing cooperatives.

In terms of capitalisation, VCC established as a PT must have a minimum paid-up capital of IDR 50 billion (approximately USD 3.2 million), [21] while a VCC established as a cooperative must have a minimum own capital of IDR 25 billion (approximately USD 1.6 million). [22] Beyond the initial capital requirement, VCC must, throughout its operations, comply with various prudential thresholds and regulatory requirements, including minimum participation requirements, any applicable equity divestment obligations, gearing ratio limits, maximum financing limits (Batas Maksimum Pemberian Pembiayaan), and mandatory assessments relating to productive asset quality, provisioning for earning asset write-offs, and the quality of financing receivables.

Further, the minimum equity requirement differs depending on the type of VCC. A VCC must maintain a minimum equity of IDR 50 billion (approximately USD 3.2 million), whereas a venture debt corporation must maintain a minimum equity of IDR 25 billion (approximately USD 1.6 million). [23]

Infrastructure Financing

An Infrastructure Financing Company (“IFC”) is a business entity established to provide financing for infrastructure projects and/or to carry out other activities or facilities in support of infrastructure financing, including IFC that conduct all or part of their business activities in accordance with sharia principles. [24] IFC is specifically regulated under OJK Regulation No. 46/POJK.05/2020 concerning Infrastructure Financing Companies, as amended (“POJK 46/2020”). The applicability of POJK 46/2020 is exempted for IFCs and/or development activities established due to a special assignment from the government. [25]

The scope of business activities of IFC comprise the following: [26]

  1. direct lending for infrastructure financing;
  2. refinancing of infrastructure which has been financed by other parties;
  3. the provision of subordinated financing in connection with infrastructure financing;
  4. other activities or facilities related to infrastructure financing, subject to the approval of the OJK; and/or
  5. other activities or facilities not related to infrastructure financing, carried out pursuant to a government mandate.

Similar to the other financing businesses, the permitted legal entity for an IFC shall be a PT or cooperatives.

In terms of capitalisation, IFCs are subject to significantly higher capital requirements compared to other financing institutions, namely:

  1. minimum paid-up capital of IDR 1 trillion (approximately USD 64.5 million) at the time of establishment; and
  2. an obligation to increase paid-up capital by at least IDR 2 trillion (approximately USD 129 million) within 5 years of the business licence issuance. [27] As for the foreign ownership, it shall also refer to the applicable limitation as set out in the Multifinance section above.

IT-Based Peer-to-Peer Funding Services (P2P Lending)

The P2SK Law expressly includes IT-based peer-to-peer funding services within the scope of Financing Services Business. [28] It defines this category as the provision, management, and operation of a financial services platform that matches lenders and borrowers directly through electronic systems (including internet-based systems), whether under conventional or sharia-based models.

This is particularly important because the P2SK Law positions peer-to-peer funding as a core financing services business category, rather than treating it as an emerging or peripheral sector.

This category captures platforms that operate as intermediaries facilitating funding between lenders and borrowers. The key regulated element is the operation of the platform itself as a financial services activity, rather than the platform merely providing “technology services” to another licensed institution.

For more information regarding P2P Lending, please see OJK Reg.40/2024.

Pawnshops – Lending Secured by Movable Assets

Pawnshop activities are expressly included as a regulated financing services business category. The P2SK Law describes this as lending secured by movable assets carried out by pawnshops. [29]

This is a particularly relevant category given the growth of pawnshop business models beyond traditional pawn arrangements, including modernised pawnshop operators offering digital services and structured secured lending products.

The statutory recognition under the P2SK Law also confirms that pawnshop activities are not treated as informal lending but as a regulated financing business model, subject to OJK oversight. Please see this link for more information regarding Pawnshops.

“Other Financing Schemes” Regulated by OJK

In addition to the categories above, the P2SK Law includes a broad provision allowing OJK to regulate other financing schemes.

This provision is significant as it enables OJK to bring emerging financing models into the regulated perimeter without waiting for a further amendment to the P2SK Law. In practice, this means that market participants should monitor OJK regulations and implementing rules, as the statutory scope is not necessarily closed.

  1. Article 106 paragraph (1) of P2SK Law. ↩
  2. Article 1 point 1 of POJK 35/2018. ↩
  3. Article 2 of POJK 47/2020. ↩
  4. Article 8 of POJK 47/2020. ↩
  5. Article 87 of POJK 35/2018. ↩
  6. Article 3 of POJK 47/2020. ↩
  7. Article 9 paragraph (1) and (2) of POJK 47/2020. ↩
  8. Article 1 point 30 and Article 19 paragraph (1) of POJK 35/2018. ↩
  9. Article 19 paragraph (2) and (4) of POJK 35/2018. ↩
  10. Article 2 paragraph (1) of POJK 32/2025. ↩
  11. Article 3 points a – c of POJK 32/2025. ↩
  12. Article 1 point 1 and 3 of POJK 25/2023. ↩
  13. Article 2 of POJK 25/2023. ↩
  14. Article 6 paragraph (1) of POJK 25/2023. ↩
  15. Article 9 paragraph (2) of POJK 25/2023. ↩
  16. Article 13 of POJK 25/2023. ↩
  17. Article 10 of POJK 25/2023. ↩
  18. Article 65 of POJK 25/2023. ↩
  19. Article 67 of POJK 25/2023. ↩
  20. Article 2 of POJK 34/2015. ↩
  21. Article 9 of POJK 34/2015. ↩
  22. Article 5 of POJK 47/2024. ↩
  23. Article 115 and 116 of POJK 25/2023. ↩
  24. Article 1 point 3 of POJK 46/2020. ↩
  25. Article 106 paragraph (5) point c of POJK 46/2020. ↩
  26. Article 2 of POJK 46/2020. ↩
  27. Article 9 of POJK 46/2020. ↩
  28. Article 106 paragraph (1) of P2SK Law. ↩
  29. Article 106 paragraph (1) of P2SK Law. ↩

Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.

 
 

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