Indonesian regulations favour the Four biggest banks

Since my post of last week, I have obtained a better copy of the new e-money regulations in Indonesia.  It's still an Unofficial Translation and is pending an accompanying Circular Letter which has yet to be released, but it does add more clarity on the uncertain regulatory environment for financial inclusion.

You can download them here https://www.dropbox.com/sh/k439k42jyew8tj2/SYwNnyIPMS or send me an email. 

The new category of “Digital Financial Services” (LKD) is specifically designed for financial inclusion. However, it appears to be identical to other e-money licenses except that it allows Book 4 banks to appoint individual agents. These could be individuals or non-legal business entities such as grocery stores, retail merchants and (phone) credit sellers. Having access to these points will be a serious leg-up to any of the Book 4 banks who are interested in extending their services.  However, this new concept of LKD won’t do anything to benefit the telcos or smaller banks who are seeking to capitalize on their e-money licenses and existing distribution networks; they will still have to rely on companies or institutions with a formal legal entity to act as Cash In / Cash Out agents.

On the KYC front, there is some increased clarity. It is clear that the issuer has responsibility for opening the account, so they will need to dedicate some back-office staff for account approvals. However, it is also clear that the agents are capable of conducting the initial registration and data entry. The account records will need to be in compliance with AML and CTF laws, but according the the accompanying explanation this should, “At least cover name, address, date of birth and other data as stated in the proof of the identity of the holder.” E-money can be either unregistered or registered, so it should be fairly easy for issuers to design a tiered KYC process.

Regarding G2P, there is also mixed news.  These regulations do specify that e-money and LKD can be used for the disbursement of social payments. However, the Ministry of Finance has an outstanding regulation (PMK 81) that specifies these payments must be made through either banks or the Post Office. Again, this will leave telcos out in the cold as they would be unable to deliver these G2P payments unless there is more regulatory reform.

Michael Joyce is a policy advisor working with the Government of Indonesia on mobile money and financial inclusion. He has been working on mobile money in Asia for six years, specialising in risk, regulation and operations. The views on this blog are his own and do not represent the views of the Government of Indonesia or constitute legal advice.