Indonesia Financial Services Authority grants microfinance institutions extra time to meet equity ratio parameter for supervisory status

The Indonesia Financial Services Authority (OJK) issued a regulation amending its supervisory framework for financing companies, venture capital firms, microfinance institutions and other financial service institutions to adjust the quantitative parameters used to determine supervisory status for microfinance institutions (Lembaga Keuangan Mikro, LKM). The change gives LKM an additional transition period to apply the equity-to-paid-in-capital ratio parameter used in supervisory status assessments. Under the earlier rules, OJK set three supervisory status categories for the PVML industry, including LKM: normal supervision, intensive supervision and special supervision. Status determination is based on three quantitative parameters: the composite health rating, the equity-to-paid-in-capital ratio and the net non-performing financing/loan ratio; while the composite health rating and net non-performing ratio were subject to a three-year transition period, the equity ratio applied immediately upon the prior regulation’s issuance. OJK cited slower economic growth affecting borrowers’ repayment capacity and pressuring equity ratios across LKM, alongside structural constraints in addressing capital shortfalls given limited funding access, capital sources and shareholders’ financial capacity.