By Eko B. Supriyanto, Chairman of Infobank Institute
Jakarta – UNEXPECTED, the finance company (multi-finance) again positioned as a stepchild. One-sided. Just imagine, if the Financial Sector Development and Strengthening (FSDS) bill passes, the finance companies can’t be led by foreigners. Sadder, cannot take third party funds, cannot even accept foreign currency loans. Also provide foreign currency loans.
Not the same as the banking and insurance sectors. Finance companies may only be led by Indonesians. Not allowed by foreign citizen (foreigners). Not knowing where the reference came from so that multi-finance is like being tied up. Funding, which has been the main problem for multi-finance companies, has been strictly enforced. It is forbidden borrowing and lending in foreign currency, except in rupiah currency.
Is this to protect duafa’s multifinance, which does not have access to foreign funds or foreign parties? Cannot be confirmed. However, the articles that bind this multi-finance need to be removed, because it is not suitable with the times, and even denies the spirit of raising multi-finance in the future. Also not even see the current reality.
Article 76, paragraph (1) c of the Financial Sector Development and Strengthening (FSDS) Bill, stipulates firmly: “the activities of providing, managing, and operating financial services to bring together lenders and credit recipients in order to conduct lending and borrowing agreements in rupiah currency directly through an electronic system using the internet network to the public”.
The scope of multi-finance activities is clearly getting narrower with Article 76 paragraph (1) c. The phrase “borrowing and lending in rupiah” is clearly very disturbing. All this time, finance or multi-finance companies are familiar with foreign exchange affairs. Not only do they receive foreign currency loans from abroad, but there are also those who provide foreign currency loans.
According to the Infobank Institute’s records, until now, finance companies have financed in foreign currency. Although there are not many, currently financing companies have begun to be active in the form of foreign exchange for export-oriented debtors – especially for heavy equipment and production machinery.
And, what happens more often, that finance companies often borrow abroad in foreign currency. Not only that, it is not uncommon for finance companies to get loans from shareholders in the form of foreign currency.
Look at the data from the Infobank Research Bureau (birI), in 2019, foreign loans were equivalent to IDR 100.19 trillion. Then, when there was a COVID-19 pandemic, the position of foreign loans decreased in 2020 to Rp92.18 trillion. And, it declined even more at the end of 2021, only Rp72.88 trillion. In 2022 (March) it reduced to Rp67.68 trillion. Well, in this year it has fallen 22.6%.
In fact, an exception is given if the financing company can prove that it accepts foreign currency sources of funds and is channelled in the same foreign currency form. That’s called natural hedging. It is more driven by natural hedging as long as the market allows it.
If this foreign exchange loan is stopped, then the finance company will be faced with the most difficult problem, namely the classic problem of funding. Liquidity! Moreover, the price of foreign loans is cheaper, even though hedging has been carried out than the interest on domestic loans.
In accordance with the Infobank Institute, for the past 17 years, finance company that have access to foreign loans, or are foreign owned, have more flexibility in liquidity, and will ultimately benefit the public.
That fact is why Article 76 paragraph 1 (c) regarding the scope of business of a finance company that requires lending and borrowing in the form of rupiah needs to be reviewed. It must be revised and provide opportunities in the form of foreign exchange – because in fact this finance company was originally a leasing company that was already familiar with foreign currency funds.
Foreigners Are Forbidden To Be Multi-finance Bosses
In addition to article 76 paragraph 1c, there are also other things that are against the times. In the era of globalization, there are no more barriers, but the draft of the bill, article 78 paragraph 2, unexpectedly still appears. Foreign ownership and management are again being questioned. Just look at the sound of article 78 paragraph 2: “ownership of foreign nationals as referred to in paragraph (1) letter f (foreign citizens-red) can only be carried out through transactions in the capital market, in a certain capacity, and is not allowed as a company manager”.
The prohibition of being a multi-finance boss is against the times and plurality. Well, surely the shareholders entrust to a trustworthy management. Must know the person, both character and ability to supervise and develop investment in finance companies in Indonesia.
More complications, because like loans in foreign currency, currently, according to data from the Infobank Research Bureau, the ownership of finance companies from a total of 158 companies, there are 63 companies owned by foreigners. Or, close to 40%. So, it is normal that the foreign shareholders want to place their representatives as management.
Nothing was violated. In fact, OJK has also regulated that the composition of foreign directors is 50% and 50% local professionals. This rule is more fair, although it is no longer necessary. However, local professionals are still given the opportunity. This issue of foreign professionals in management does not apply to the banking and insurance sectors.
So, this article needs to be revised. Not suitable with the times and denies the nature of a company. It’s like we have a company handed over to people we don’t know, of course it’s not good and full of risks.
The two articles will certainly disrupt the industry, which has already reached the Rp400 trillion marks, involving 20 million customers. So, to keep pushing finance forward, this article needs to be reviewed again.
According to the Infobank Institute, which is based on financial business ownership and type of business, there are five major groups of finance company ownership that determine the future of the multi-finance industry. One, a finance company owned by a bank. Two, a finance company owned by a group of automotive manufacturers. Three, a finance company that owns by showroom. Four, a finance company that stands alone without a manufacturers group, showroom, and bank. FIve, a finance company that is in the same group as a bank, car manufacturer, showroom, and insurance company.
For groups that have banks, it is much better, because banks can be an important solution to financing or liquidity problems. In the 2009 global crisis recovery, multi-finance movements were visible. So passionate. The automotive sector is also moving up, both motorcycle and car sales are finding momentum. Previously, in 2005, there was an increase in fuel prices, which made multi-finance companies experience a decline in growth but eventually grew again – at that time motorcycle and car sales were depressed. However, it was only for a short time as the situation went back up.
The year 2013 was the peak of multi-finance financing before declining due to the revocation of the fuel subsidy in 2015, and the case of double pledging in 2017/2018. However, the development of multi-finance is mostly caused by the increase in fuel which has an impact on rising prices. That’s when the multi-finance increasingly heavy breathing.
Currently the pressure on fuel prices is also heavy. However, by looking at the development of multi-finance in 2021, it seems that it has returned to its normal point, although it has not “gassed” at high speed. At least the signs of recovery are there.
However, what continues to be a challenge is the issue of liquidity. Funding is very important for the life and death of multi-finance. The proof is, when there is a double pledging tragedy, it is very difficult for multi-finance to find loans from banks, except for multi-finance owned by banks.
That is also, there are suggestions that develop, especially in article 86 letter (a). Financing Service Providers are prohibited from “collecting funds directly from the public in the form of demand current account, savings, deposits, and/or other forms that are equated with the collection of public funds”.
The point is that finance companies cannot collect public funds. However, at least can learn from a finance company in Hong Kong. Finance companies in Hong Kong are allowed to take third party funds in certain categories. Not retail, like savings.
Discussions about whether or not finance companies can take third party funds have been going on since before the 1998 crisis. The result? It’s always raw because multi-finance is different from banks. If allowed, it will cause complications.
Nevertheless, it’s a good thing – those who are allowed to receive third party funds to a certain extent. For example, above Rp2 billion and only corporations or institutions. This proposal is solely to let multi-finance can run faster, and become an alternative to public financing. The role of finance companies in the last 20 years has been seen, growing with a portfolio of IDR 400 trillion.
Thus, article 76 paragraph 1 (c), as well as article 78 paragraph 2, needs to be repealed, or revised. Hopefully the articles 86 letter (a) will also be amended by allowing multi-finance receive third party funds in large nominal terms, and of course with strict conditions so that it does not become a more serious problem.
Do not let multi-finance companies constantly to be stepchild. Why it’s forbidden to look for foreign exchange funds and foreigners can’t be bosses in the company they own. Strange and deny the global era. (*)