A Brief History of Financing Companies
In Indonesia, financing companies were initially known as leasing companies, which were part of broader financial institutions known as Lembaga Pembiayaan (Financing Institutions). These institutions consist of financing companies, venture capital firms, and infrastructure financing companies. They are a key component of Non-Bank Financial Institutions (NBFIs) and play a crucial role in financing and managing development funding across the country.
The leasing industry in Indonesia began with the issuance of a Joint Decree (SKB) by three Indonesian ministers: the Minister of Finance, the Minister of Industry, and the Minister of Trade. The decree — No. KEP-122/MK/IV/2/1974, No. 32/M/SK/2/1974, and No. 30/Kpb/I/1974 — was issued on February 7, 1974. The aim was to support national development, which required a large amount of capital goods such as ships, machinery, tractors, trucks, excavators, and other heavy equipment. This led to the establishment of leasing companies, whose business activities were initially limited to leasing (known locally as sewa guna usaha).
As the leasing industry evolved, the Indonesian government issued a policy reform known as the December 20, 1988 Policy Package (Paket Des 1988). This broadened the scope of financing company activities beyond leasing alone. Through Presidential Decree No. 61 of 1988 on "Financing Institutions" and the Minister of Finance Decree No. 1251/KMK.013/1988 regarding operational procedures for financing institutions, financing companies were authorized to expand their business areas to include venture capital, securities trading, factoring, credit card services, and consumer financing. However, these companies were still prohibited from collecting funds directly from the public.
In the early 2000s, following the Asian financial crisis, consumer spending in Indonesia began to recover. At that time, only about 30 financing companies remained operational. The resurgence in consumer demand attracted many investors to re-enter the industry, particularly those focusing on automotive financing. As a result, 70% of annual motor vehicle sales in Indonesia became supported by financing companies, significantly boosting the automotive sector.
To further strengthen the role of financing companies, the Financial Services Authority (OJK) issued two important regulations:
POJK No. 35/POJK.05/2018 (December 28, 2018) on the Operation of Financing Companies
POJK No. 10/POJK.05/2019 (February 26, 2019) on the Operation of Sharia-Based Financing Companies
These regulations directed financing company operations to focus more on productive sectors, including investment financing and working capital financing.
What is a Financing Company?
According to POJK No. 35/POJK.05/2018 dated December 28, 2018, regarding the Operation of Financing Companies, a financing company is a business entity that carries out financing activities for goods and/or services. In principle, this financing of goods and/or services is intended for business/investment activities or for personal/consumption use over an agreed period according to the needs of the community and the business world.
Financing companies are not allowed to collect funds from the public, unlike banks.
Goods financing can include capital goods such as heavy equipment, ships, factories, trucks, as well as consumer goods like cars, motorcycles, TVs, laptops, mobile phones, and so on.
Service financing can include services such as architectural services for building construction, tuition fees, and others.
What Activities Do Financing Companies Engage In?
The activities of financing companies include:
Investment Financing: This involves financing capital goods along with the necessary services for business/investment activities such as rehabilitation, modernization, expansion, or relocation provided to debtors. Investment financing is granted to business entities or individuals with productive businesses through various methods, including Finance Lease, Sale and Lease Back, Installment Purchase, Project Financing, Factoring with Recourse, Factoring without Recourse, and Infrastructure Financing.
Working Capital Financing: This type of financing is intended to cover expenses that are consumed within one business cycle of the debtor. Working capital financing is provided to business entities or individuals with productive businesses through methods such as Sale and Lease Back, Factoring with Recourse, Factoring without Recourse, and Business Capital Facilities.
Multipurpose Financing: This financing covers goods and/or services needed by the debtor for personal/consumption use and not for business or productive activities, within an agreed period. Multipurpose financing is offered to business entities or individuals for consumption purposes through methods such as Finance Lease and Installment Purchase.
Operating Lease Financing and/or Service-Based Activities: These activities involve operating leases or service-based agreements as long as they do not conflict with applicable regulations (POJK).
Benefits and Risks of Financing
The existence of financing companies generally supports national development and the growth of the economy and business sectors. The direct benefits felt by the public include:
Financing companies also help people grow their businesses by offering various types and products of financing services that suit their needs, thereby improving the community’s standard of living.
Risks
To reduce the risks faced by the public when dealing with financing companies, people must ensure that the financing company is registered with and supervised by the Financial Services Authority (OJK). This means the company has the proper license to operate according to OJK regulations.
Another risk that may arise is if the borrower delays paying installments on time. Late payments will incur fines, and if the borrower continues to default and receives warning letters or fails to meet their obligations (breach of contract), they may be required to surrender the financed unit or goods (for repossession). Late payments can also result in being listed as a non-credible debtor.
Cost
The costs that may arise related to the financing received by the debtor include survey fees, insurance/guarantee/fiduciary fees, provision fees, notary fees, and others.
Rights and Obligations
Rights
As users of financing services, customers have the right to receive honest, clear, and non-misleading information about the products offered. They should have easy access to the necessary information, explanations about any costs that may arise from the financing, and the opportunity to choose if offered product packages.
Obligations
Users of financing services also have obligations, including ensuring that the goods to be financed are needed and affordable. They must fill out and sign the Financing Application in good faith, honestly, and completely. They should provide accurate, honest, clear, and non-misleading information and documents. It is important to understand all terms listed in the financing agreement, sign the agreement completely, pay installments on time, and pay other fees that may arise as per the financing agreement.
How to Access Financing Companies
To obtain information and use the products and/or services of financing companies, customers can visit the company’s office branches available in various cities or access the company’s website via the internet.
Complaint Handling and Dispute Resolution
The financing industry in Indonesia has an Alternative Dispute Resolution Institution (LAPS), which serves as a mediation body if disputes between service users and financing companies cannot be resolved internally (internal dispute resolution). Disputes can be resolved through court or out-of-court settlement (external dispute resolution). Out-of-court resolution is conducted through LAPS.
Financial Management
The first step in managing finances is self-control and being smart in managing desires to own everything. Financial management can be done by managing cash flow as follows:
Always try to set aside part of your income for savings or investments for a better future.
Taxes Related to Financing
Users of financing services, whether individuals or entities, are subject to Income Tax (PPh) and must register to obtain a Taxpayer Identification Number (NPWP). The taxable object is income, so if a transaction related to financing activities does not generate income, it will not be subject to Income Tax.
Regarding financing services received, these are types of services exempt from Value Added Tax (VAT) as regulated in Article 4A paragraph (3) letter d of the Value Added Tax Law. These financing services include those based on Sharia principles such as finance leases with purchase options, factoring, credit card business, and/or consumer financing.
