Jakarta. The Financial Services Authority, Indonesia's financial services regulator known as the OJK, is preparing a regulation that would allow local financial technology companies to lend money directly to customers to provide more financing choices for the public, its senior officials said on Tuesday (14/02).

The about-face move came less than two months after the authority barred the practice, known as the on-balance-sheet model, to prevent fintech companies from directly competing with existing banks and financing companies.

OJK at that time had only allowed fintech companies to act as brokers, to match debtors and lenders.

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

According to Dumoly, OJK will cap maximum loans offered by on-balance-sheet fintechs to gear them toward small amount lending, currently under-served by conventional financing institutions.

Dumoly said the OJK will not regulate interest rates imposed by fintechs on their debtors. But the fintechs will be required to submit detailed reports on their operating expenses, capital strength and risks periodically to the OJK.

"[By forcing transparency] they can't impose lending rates carelessly because we know [...] how much risks they take," he said.

Separately, Firdaus Djaelani, an OJK commissioner for non-banking financial institutions, told reporters that the regulation will detail how much leverage fintech lenders could operate with. Today, Indonesian banks or financing companies can only lend out ten times their capital.

The OJK will also regulate the minimum capital requirement, business model and other requirements for on-balance-sheet fintech lenders.

"This is part of our financial inclusion reform. We want to have as many financial institutions as possible to improve public liquidity," Firdaus said. He said the regulation will be released around April to June this year.

Fintech lenders with on-balance-sheet lending model distribute funds from its own pocket. Last year, OJK released a regulation for peer-to-peer (P2P) fintech lenders who pass funds from other individual or business lenders.

At the time, OJK was against the idea of allowing on-balance-sheet model as it was deemed too similar to financing companies or banks who are bound to much stricter regulations. The OJK even urged on-balance-sheet fintech lenders to convert into so-called P2P lenders.

In an effort to comply with the OJK's first regulation on fintech, UangTeman — Indonesia's first online lending service — had said they will change their business model into P2P.

Rio Quiserto, UangTeman deputy chief executive, told the Jakarta Globe the plan has so far remained unchanged despite the OJK's plan to issue another regulation.

"UangTeman would not bet on anything until the regulation has been released. Right now we only focus on the regulation that has been released by the OJK," he said.