Indonesia: Minimum Down Payment Set for Islamic Financing

In a move to help curb consumer financing growth, the Finance Ministry has set stricter down payment requirements on Islamic financing for automotive purchases. 

The new regulation, which will apply to all non-bank Islamic financing institutions, requires a down payment of 20 percent for two-wheeled vehicle purchases and a 25 percent down payment for four-wheeled vehicles. The purchase of commercial four-wheeled vehicles — such as trucks or buses — requires a 20 percent down payment. 

Previously, down payment requirements had not been regulated for Islamic financing companies, with firms typically requiring either no down payment or a down payment of no more than 10 percent. 

The Finance Ministry has since June imposed similar down payment requirements for conventional financing of automotive purchases. 

However the failure to regulate Islamic financing left a loophole that allowed customers to take advantage of lower, unregulated rates. 

“This regulation is aimed to prevent such regulatory arbitrage between conventional and Islamic financing companies,” said Yudi Pramadi, the Finance Ministry spokesman, in a release on Friday. 

“It will create a level playing field for all financing companies,” Yudi said. 

The new regulation will go into effect on Tuesday, the same day the new Financial Service Supervisory Agency (OJK) will take over the job of supervising non-bank financial institutions. 

This responsibility had previously been handled by the Finance Ministry’s Financial Institution Supervisory Agency (Bapepam-LK). 

Bank Indonesia, the central bank, issued down payment regulations for Islamic banks in November, requiring a 25 percent down payment for two-wheeled vehicle purchases and a 30 percent down payment for four-wheeled vehicles, bringing the Islamic banking requirements in line with automotive down payment requirements implemented by their commercial counterparts since June. 

The central bank’s new regulation, however, will not go into effect until April 1. The central bank will not hand their supervisory authority over banks to the OJK until January 2014. 

(Jakarta Globe / 31 Dec 2012)

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