OJK Revises LKM Regulations to Strengthen Loan Risk Mitigation

The Financial Services Authority (“OJK”) is currently finalizing the Draft Amendment to OJK Regulation No. 41 of 2024 on Microfinance Institutions (Lembaga Keuangan Mikro - “LKM”) (“POJK LKM”). The amendment will provide LKM with greater scope to strengthen loan risk mitigation by assessing historical data of prospective debtors recorded in the Financial Information Services System (Sistem Layanan Informasi Keuangan - “SLIK”).

“Essentially, access to SLIK by LKM will depend on the readiness of the infrastructure and the capacity of each LKM. The utilization of historical data is intended, among other things, to enable LKM to improve their assessment of the eligibility of prospective debtors,” said Agusman, Chief Executive of the Supervision of Financing Institutions, Venture Capital Companies, Microfinance Institutions, and Other Financial Services Institutions (Kepala Eksekutif Pengawas Lembaga Pembiayaan, Perusahaan Modal Ventura, Lembaga Keuangan Mikro, dan Lembaga Jasa Keuangan Lainnya - “KE PVML”).

In addition, OJK is also introducing provisions to ensure greater transparency in financial reporting through a write-off mechanism. Agusman explained that the addition of provisions on write-offs is intended to provide legal certainty in accounting practices and reduce the potential for problem financing.

“The amendment to POJK No. 41 of 2024 on LKM is targeted for issuance in the fourth quarter of 2026,” Agusman concluded.