The Financial Services Authority (OJK) of Indonesia has issued a new regulation to govern Alternative Credit Ratings (PKA), also known as Innovative Credit Scoring (ICS).

This move aims to promote financial innovation and inclusion in the country while ensuring the OJK maintains a strong supervisory role over these new providers.

The new regulation responds to the growing use of technology in financial services.

It recognises the potential of PKA to enhance credit scoring by incorporating alternative data sources like telecommunications, utilities, and e-commerce records.

This is expected to benefit individuals and small businesses with limited traditional credit histories.

The regulation outlines the framework for PKA operations, including institutional requirements, governance, data security, and consumer protection.

It also addresses licensing, supervision, and compliance aspects, including provisions for the termination of PKA activities and the revocation of licenses.

The OJK will be responsible for licensing PKA providers and ensuring their ongoing compliance with these regulations.

OJK believes that PKA will improve credit access while upholding responsible lending practices under their supervision.

The regulation is in line with the mandate of Law Number 4 of 2023, which focuses on strengthening the financial sector and regulating activities in areas like digital financial assets and innovative financial technologies.

To ensure smooth implementation, OJK has conducted socialisation sessions with various stakeholders.

This includes the Indonesian Fintech Association (AFTECH), the Indonesian Sharia Fintech Association (AFSI), registered Innovative Credit Scoring Organisers, the Indonesian Joint Funding Fintech Association (AFPI), the Indonesian Financing Association (APPI), and the National Bank Association (Perbanas), as well as prospective Innovative Credit Scoring Organisers who are currently submitting registration.

The article first appeared on Fintech News Singapore