Financial Services Authority Regulation Number 4 of 2026 Governs Islamic Banking Investment Products

Introduction

On 1 April 2026, the Financial Services Authority (“OJK”) issued Financial Services Authority Regulation Number 4 of 2026 on the Implementation of Islamic Banking Investment Products (“POJK 4/2026”), which took effect on 29 April 2026. This regulation governs the implementation of investment products in Islamic banking, covering Islamic Commercial Banks (BUS), Sharia Business Units (UUS), and Sharia Rural Banks (BPR Syariah), with the objective of establishing Islamic banking investment products that are reliable, responsible, sustainable, contributive, and inclusive.

On the other hand, prior to the enactment of Law Number 4 of 2023 on the Development and Strengthening of the Financial Sector (P2SK Law), the regulation of Islamic banking investment products still applied principles similar to deposit products, despite their differing legal characteristics and risk profiles. The P2SK Law subsequently distinguishes deposit products from investment products in Islamic banking, whereby investment constitutes funds entrusted by customers to the bank based on a mudarabah contract or other Sharia contracts, with risks fully borne by the investor customer. OJK enacted POJK 4/2026 to fill the regulatory gap and ensure that Islamic banking investment products are implemented in accordance with Sharia principles grounded in fairness, balance, transparency, and proportional profit-sharing and risk-sharing.

 

Key Provisions

Characteristics and Basic Features of Islamic Banking Investment Products

Article 2 stipulates that Islamic Banking Investment Products are advanced banking products with the nature of restricted investments. Banks are required to record such products in their financial position statements, whereby investment funds from customers are recorded under the “investment funds” account, presented separately from liabilities and equity, while the Underlying Assets are recorded based on their asset classification in accordance with Financial Accounting Standards (SAK) and/or Indonesian Sharia Banking Accounting Guidelines (PAPSI).

Article 3 paragraph (1) provides that each Islamic Banking Investment Product must have basic features that constitute its primary characteristics. These features shall at least include the following:

1. Two-stage contracts: an investment placement contract between the bank and the investor customer, and a fund disbursement contract between the bank and the Underlying Assets involving customers or other parties. 
2. Type of placement contract: must use a Mudarabah contract or other contracts not contrary to Sharia Principles. 
3. Underlying Assets: may consist of financing and/or Sharia securities already owned or to be owned by the bank in accordance with risk acceptance criteria. 
4. Disbursement contracts: include all contract types in accordance with Sharia Principles, such as murabahah, istishna, salam (sale contracts), mudarabah and musyarakah (profit-sharing), and ijarah (leasing). 
5. Performance-based profit-sharing: investment returns are based on profit-sharing from gains/losses of the Underlying Assets or other returns in accordance with the applicable contract. 
6. Aligned tenure: the investment placement period must match the tenure of the Underlying Assets. 
7. Balanced nominal value: the amount of investment funds collected must equal the value of the Underlying Assets financed. These funds may originate from one or more investor customers, and the Underlying Assets may consist of one or more productive assets. 
8. Held to maturity: the investment is intended to be held until maturity and is not tradable. 
9. Risk borne by customers: losses arising from risks in the Underlying Assets are borne by investor customers, provided there is no error or negligence by the bank. 
10. Segregated management: investment funds must be managed separately from the pool of funds derived from third-party deposits and/or other liabilities. 
11. Not guaranteed by LPS: investments are not covered by the Deposit Insurance Corporation. 
12. Limited asset settlement proceeds: proceeds from the settlement of Underlying Assets may only be used to return investment funds to investor customers. 

Additional Features and Early Redemption

Pursuant to Article 3 paragraph (2), banks may introduce additional features in the form of early redemption for customers wishing to withdraw funds prior to maturity. The permitted features include:

1. Early redemption for financing assets: investor customers may withdraw funds before maturity provided that replacement investor customers are available and the replacement does not use bank funds. 
2. Early redemption for Sharia securities: early withdrawal may be conducted if, based on the bank’s assessment, there is a potential decline in the value of the securities and with the investor’s consent; and/or replacement funds may be sourced from the bank at market price. 
3. Tenure flexibility: the investment placement period may differ from the contractual tenure of the Underlying Assets, provided the remaining asset tenure matches the investment placement period. 
4. Accelerated settlement of Underlying Assets: full settlement terminates the investment product, while partial settlement proportionally reduces its value. 

Implementation Policies and Procedures

Article 6 requires banks offering Islamic Banking Investment Products to establish implementation policies and procedures referring to POJK provisions on commercial bank products and BPR/BPRS products. In addition, banks must establish supplementary policies and procedures covering the following:

1. Suitability assessment mechanism: banks must conduct customer profiling to ensure alignment with investment objectives, risk tolerance, financial profile, and investment experience. 
2. Disclosure standards: banks must define standards for disclosing information on investment products to customers. 
3. Determination mechanism for Underlying Assets: banks must ensure that asset complexity and risk align with the investor’s profile based on the conducted suitability assessment. 
4. Customer engagement management: must be conducted actively and periodically through written communication, electronic correspondence, and direct online or offline interaction. 

Segregation of Fund Management and Recording

Article 7 emphasizes the obligation to segregate the management and recording of investment funds from third-party deposits, as well as the segregation of Underlying Assets from other productive assets managed by the bank. This includes separate calculations of rates of return between deposit funds and investment funds. To ensure proper implementation, banks must maintain adequate internal control systems, including reliable information systems to support accurate financial reporting of Islamic Banking Investment Products.

Prudential Principles for Implementing Banks

Article 8 governs the application of prudential principles for banks offering Islamic Banking Investment Products, including:

1. Risk-weighted asset (RWA) calculations in accordance with applicable POJK for each bank type (BUS, UUS, BPR Syariah). For UUS planning spin-offs or conversion into BUS, RWA calculations follow BUS provisions. 
2. Maximum financing limit calculations refer to the applicable POJK for each bank type. 
3. Quality of Underlying Assets is assessed in accordance with applicable asset quality regulations. 
4. Impairment provisioning is recorded based on the type of contract of the Underlying Assets. 
5. Investment funds and Underlying Assets are excluded from the Financing to Deposit Ratio (FDR) calculation. 

Prudential Principles for Financial Services Institutions as Investor Customers

Article 9 sets provisions for investor customers that are financial services institutions (LJK), including:

1. Risk weight calculations for Underlying Assets follow applicable POJK provisions for each LJK. 
2. Maximum investment limits are calculated using a proportional look-through approach based on the composition of Underlying Assets. 
3. Asset quality determination uses the Realization of Investment Return/Projected Investment Return (RPI/PPI) ratio, with the following criteria: 

Additionally, impairment provisions are borne by the LJK investor customer and reduce the investment value.

 

Sanctions

Articles 4 and 11 regulate administrative sanctions. At the initial stage, banks violating provisions on recording (Article 2 paragraph (4)), basic product features (Article 3 paragraph (1)), governance, risk management, policies and procedures, and segregation obligations (Article 5 paragraphs (1) and (4), Article 6 paragraph (2), Article 7 paragraphs (1) and (3)) are subject to written warnings.

If violations persist after written warnings, sanctions may be escalated to prohibitions on issuing new bank products, suspension of certain business activities, restrictions on business expansion, prohibitions on undertaking new business activities, and/or downgrading of governance ratings in bank soundness assessments. Key bank personnel may also be prohibited from serving as key parties in financial institutions.

In addition, BUS and UUS may be subject to fines ranging from IDR 2,000,000,000 to IDR 50,000,000,000 per violation, while BPR Syariah may be subject to fines ranging from IDR 10,000,000 to IDR 100,000,000 per violation.

 

Transitional Provisions

Pursuant to Article 12, banks that had Islamic banking investment products prior to 29 April 2026 are required to align such products with POJK 4/2026 no later than 29 April 2028 and/or until the contract term expires. Meanwhile, applications for licenses submitted before 29 April 2026 will be processed in accordance with POJK 4/2026.

 

Closing

POJK 4/2026 distinctly separates investment products from deposit products in Islamic banking, defining investment products as restricted investments that are not guaranteed by the Deposit Insurance Corporation and whose risks are borne by investor customers, except in cases of bank negligence. To establish a trustworthy and Sharia-compliant investment ecosystem, the regulation requires banks to implement robust governance, including fund segregation, suitability assessments, and disclosure standards. Enforcement is ensured through administrative sanctions and fines of up to IDR 50 billion, while providing a transition period for banks to align existing products no later than 29 April 2028 and/or until the relevant contract period ends.