The proposal came about two months after the authority banned fintech startups from lending money directly to their customers

Senior officials at the Indonesian financial services authority (OJK) announced on Tuesday that the agency is preparing a regulation that would allow local fintech companies to lend money directly to their customers, a practice known as on-balance-sheet model.

Jakarta Globe reported that the proposal came less than two months after the authority banned the practice, in order to prevent direct competition with banks and other financial institutions.

“Like it or not, [on-balance-sheet fintech lenders] exist and if we don’t regulate them, the banks will suffer,” said Dumoly F. Pardede, OJK deputy commissioner for non-banking supervision.

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In the status quo, fintech companies are only allowed to act as brokers who facilitate transactions between debtors and lenders. Fintech companies offering on-balance-sheet model are required by regulation to convert into the P2P lending scheme.

Pardede stated that under the new regulation OJK will cap maximum loans offered by on-balance-sheet fintechs to gear them toward small amount lending, a segment that is currently under-served by conventional banking and financial institutions.

He also stated that OJK will not regulate interest rates imposed by fintech companies on their debtors, though the companies will be required to preiodeically submit detailed reports on their operating expenses, capital strength and risks.

The report also stated that lending companies such as UangTeman will not “bet on anything” until the new regulation is released, and will focus on the ones that OJK has released.

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