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In recent years, Indonesia's Fintech sector has grown rapidly and made considerable impacts on the country's financial services. This includes the emergence of peer-to-peer lending (“P2P Lending”), whose particular market is Small and Medium-Sized Enterprises (“SMEs”).
As Indonesia is the most populous Muslim-majority country in the world, people have growing interest in Sharia-based financial services. With the emergence of fintech and tech-based financial services, it is interesting to see the digitalization of Islamic finance, including Islamic Finance/Sharia-based P2P Lending (“Sharia P2P Lending”).
In this article, we will provide you with an overview of the regulatory framework of Sharia P2P Lending in Indonesia.
Similar to the conventional P2P Lending, the main legal basis of Sharia P2P Lending in Indonesia is Financial Services Authority Regulation No. 77/POJK.01/2016 on Information Technology-Based Lending and Borrowing Services (Peraturan Otoritas Jasa Keuangan No. 77/POJK.01/2016 tentang Layanan Pinjam Meminjam Uang Berbasis Teknologi Informasi or “POJK 77/2016”).
In addition to POJK 77/2016, the implementation of Sharia P2P Lending should comply with Fatwa of the National Sharia Council of the Indonesian Ulema Council (Majelis Ulama Indonesia) No. 117/DSN-MUI/II/2018 on Information Technology-Based Financing Services Based on Sharia Principles (Fatwa Dewan Syariah Nasional Majelis Ulama Indonesia No. 117/DSN-MUI/II/2018 tentang Layanan Pembiayaan Berbasis Teknologi Informasi Berdasarkan Prinsip Syariah or “Fatwa”).
Sharia P2P Lending is generally required to comply with Sharia principles; therefore, it must not contain elements of:
Notwithstanding the prohibited elements, Sharia P2P Lending providers are allowed to charge its customers for their services. In this regard, the fees are chargeable on the basis of ijarah principle.
Similar to its conventional counterparts, Sharia P2P Lending providers provide loans to their borrowers based on agreements or contracts. In Sharia finance, a contract is generally called akad.
The types of akad that are relevant in the implementation of Sharia P2P Lending are as follows:
The types of services usually provided by Sharia P2P Lending providers include:
With regard to the service models, the types of services provided by Sharia P2P Lending operators are generally similar to those provided by their conventional counterparts. The main difference is, the types of businesses involving Sharia P2P Lending should be halal businesses (i.e., not sellers of alcoholic beverages or other non-halal industries).
To provide a better understanding on different types of akad and how they are implemented in different services of Shariah P2P Lending, please refer to the following table for your further references:
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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