Government Regulation Number 6 of 2026 Issued, Incubation Microfinance Institutions Must Be Registered or Are Prohibited from Operating

Introduction

On 4 February 2026, the Government issued Government Regulation Number 6 of 2026 on the Development and Supervision of Incubation Microfinance Institutions and Small-Scale Microfinance Institutions by Regional Governments (“GR 6/2026”), which took effect on that date. This regulation implements the mandate of Article 9 paragraph (8) of Law Number 1 of 2013 on Microfinance Institutions as amended by Law Number 4 of 2023 on the Development and Strengthening of the Financial Sector. GR 6/2026 regulates three main aspects: (i) the registration and development of Incubation Microfinance Institutions (“MFIs”) by Regency/Municipal Regional Governments; (ii) the encouragement of the transformation of Incubation MFIs into financial service institutions licensed by the Financial Services Authority (“OJK”); and (iii) the development and supervision of Small-Scale MFIs by Regional Governments.

At present, many MFIs have been operating, do not collect public funds, yet do not possess business licenses from OJK. These institutions have filled the gap in formal financial services for low-income communities that lack collateral to access bank credit. Micro, Small, and Medium Enterprises (MSMEs), which account for more than 90% of national businesses and absorb more than 95% of the workforce, face significant barriers due to limited access to financing. Through GR 6/2026, the Government aims to provide legal status for unlicensed MFIs (Incubation MFIs), protect community Revolving Funds from misuse, and ensure the sustainability of microfinance services in a professional, accountable, and sustainable manner.

 

Key Provisions

Definitions

Article 1 of GR 6/2026 sets out several definitions related to MFIs. An MFI is a financial institution established specifically to provide business development services and community empowerment through micro-scale lending/financing, savings management, and business development consulting services that are not solely profit-oriented. An Incubation MFI is an MFI that has already been operating, whether established as part of a government program or by the community, does not collect public funds, and has not yet met the minimum requirements as an OJK-licensed MFI. Meanwhile, a Small-Scale MFI is an MFI that has complied with OJK regulations concerning MFIs. Pursuant to Articles 2 and 3, GR 6/2026 regulates the development and supervision by Regional Governments over both types of institutions in order to support the development and strengthening of the financial sector through the structuring of MFIs.

Registration Obligation for Incubation MFIs

Article 4 paragraph (1) provides that every MFI that is already operating, does not collect public funds, and does not yet have an OJK business license must be registered with the relevant Regency/Municipal Regional Government as an Incubation MFI. Examples of MFIs in this category include Agribusiness MFIs (LKMA), Pahlawan Ekonomi Nusantara (PENA), Joint Business Groups (KUBE), and Community Self-Help Groups (KSM). The registration mechanism is regulated in Article 4 paragraphs (2) and (3), whereby the management/board of directors/leadership of the MFI submits an application to the Regency/Municipal Regional Government, which then issues a certificate of registration. Furthermore, under Article 4 paragraph (4), the Regency/Municipal Regional Government must report registered Incubation MFIs electronically and/or non-electronically to several institutions, including the Ministry of Home Affairs, the Ministry of Cooperatives, ministries/agencies managing Revolving Funds, the Audit Board of Indonesia (BPK), the Financial and Development Supervisory Agency (BPKP), and the Governor, with copies to OJK and the Ministry of Finance. In addition, Article 5 requires the Regional Government to disseminate this registration obligation.

Legal Form of Incubation MFIs

Article 6 stipulates that Incubation MFIs may take the form of legal entities or non-legal entities. Legal entity forms include cooperatives and limited liability companies. Non-legal entity forms include activity management units (for Incubation MFIs established under government programs) and community-based business groups, including credit unions or pre-cooperatives that have not yet obtained legal entity status. However, Article 6 paragraph (4) emphasizes that non-legal entity Incubation MFIs are encouraged to transform into legal entities, as legal status provides stronger legal protection, asset separation, easier access to capital, and better credibility. Furthermore, Article 7 provides that Incubation MFIs are prohibited from being owned, directly or indirectly, by foreign nationals and/or foreign business entities.

Permitted Business Activities and Prohibitions for Incubation MFIs

Article 14 provides that the business activities of Incubation MFIs are limited to the provision of loan or financing facilities for micro-scale businesses and business development consulting services. In extending loans, the distribution and repayment schemes must be coordinated through community coordinators/management.

Meanwhile, Article 16 sets out seven prohibitions for Incubation MFIs in conducting business activities, as follows:

1. Conducting public fund-raising activities; 
2. Participating in payment traffic; 
3. Conducting business activities in foreign currency; 
4. Conducting insurance business as an insurer; 
5. Conducting guarantee business as a guarantor; 
6. Providing loans or financing to other Incubation MFIs and/or other financial institutions; and 
7. Conducting business activities beyond those permitted under Article 14. 

Reporting Obligations on Business Activities

Article 17 paragraph (1) requires every Incubation MFI to report the implementation of its business activities to the Regency/Municipal Regional Inspectorate. Such reports must be submitted at least once every 6 (six) months and at any time when required. The semi-annual report must include at least eight components, as stated below:

1. Sources of income; 
2. Profit and loss calculation (referring to the format in the Annex of GR 6/2026);
3. Distribution of business results (referring to the format in the Annex of GR 6/2026);
4. Balance sheet (referring to the format in the Annex of GR 6/2026);
5. Conformity between plans and realization; 
6. Number of customers; 
7. Types of financed businesses; and 
8. Credit quality measured by the timeliness of installment payments. 

In addition to semi-annual reports, Article 17 paragraph (4) regulates ad hoc reports containing, among others, articles of association and bylaws, composition of directors/commissioners or management/supervisors, annual accountability reports, and work plans and budget plans of the Incubation MFI.

Information Disclosure Obligations of Incubation MFIs

Article 18 requires Incubation MFIs to provide information openly to members or the public as service users, at a minimum including the authority and responsibilities of directors or management, as well as terms and conditions relevant to parties seeking loans. This information may be delivered through group meetings, presentations, information boards, official websites, and/or bulletins. In relation to complaint mechanisms, Article 19 requires Incubation MFIs to establish and implement mechanisms for handling public complaints. If the complaint handling process does not result in an agreement, the public may submit complaints to the Regency/Municipal Regional Government and/or pursue dispute resolution through legal channels.

Transformation of Incubation MFIs into OJK-Licensed Financial Institutions

Article 8 provides that Provincial and Regency/Municipal Regional Governments encourage Incubation MFIs to transform into OJK-licensed financial service institutions. Article 9 paragraph (1) emphasizes that Incubation MFIs must apply for a business license to OJK if the Regency/Municipal Regional Government assesses that the Incubation MFI has met the requirements to transform into one of three types of financial institutions, namely an OJK-licensed MFI, a rural bank, or a financing service company (either conventional or based on sharia principles).

For Incubation MFIs in the form of limited liability companies that will transform into OJK-licensed MFIs, Article 9 paragraph (2) stipulates that at least 60% of the share ownership must be held by the Provincial Government, Regency/Municipal Government, or village-owned enterprises. If the shares are owned by the Regional Government, the Incubation MFI must take the form of a regionally owned enterprise in accordance with applicable laws and regulations.

The transformation mechanism is regulated in Article 10, whereby the Regency/Municipal Regional Government may consult with OJK to assess readiness. The Regional Secretary issues a notification letter, and the Incubation MFI receiving such letter must apply for an OJK business license within a maximum period of 3 (three) months from the date of the notification. The Regional Government must also provide assistance in preparing the requirements. Specifically, for Incubation MFIs established under government programs, prior to applying for a business license, they must separate their own capital from the Revolving Funds received, including any added value such as interest or profit-sharing. Incubation MFIs that have successfully transformed will be removed from the Incubation MFI registry at the Regional Government.

Soundness Level and Supervision Mechanism of Incubation MFIs

Article 22 requires every Incubation MFI to meet the soundness level determined by the Regency/Municipal Regional Government. This soundness level includes four interrelated aspects: sound (maintaining trust and sustainable lending), strong (adequate capitalization), independent (optimizing own capital and reducing reliance on loans), and resilient (able to manage pressure and build synergy with other financing institutions).

If an Incubation MFI does not meet the soundness level, Article 22 paragraph (3) provides that the Regional Government has the authority to require additional capital, replace commissioners/supervisors or directors/management, require optimization of bad loan collection, and/or take other measures as determined. If such measures are insufficient and the Incubation MFI was established by the community, the Regional Government may remove it from the registry. For government program-based Incubation MFIs, the Regional Government coordinates with relevant ministries/agencies to determine follow-up actions, which may include removal from the registry, intensified collection efforts, and the obligation to return Revolving Funds.

Article 32 regulates two types of supervision: routine supervision and ad hoc supervision, which may be conducted through three methods, namely examination of business activity reports, follow-up examinations, and/or other methods, either on-site or off-site. Supervision may also utilize information technology. Under Article 38 paragraph (9), supervision results are expressed in the form of soundness ratings with three statuses: sound, eligible to be proposed as an OJK-licensed financial institution, or under supervision. Incubation MFIs deemed sound may receive a soundness certificate from the Regional Inspector, which may be published to enhance stakeholder confidence.

Administrative Sanctions

Article 46 paragraph (1) regulates administrative sanctions that may be imposed on directors and/or management of Incubation MFIs that violate the provisions of GR 6/2026, particularly violations of Article 7 (foreign ownership prohibition), Article 9 paragraph (1) (obligation to apply for a license), Article 10 paragraph (3) (3-month deadline for license application), Article 16 (prohibited activities), Article 17 paragraph (1) (reporting obligations), Article 18 (information disclosure), Article 19 paragraph (2) (complaint mechanism), and Article 22 paragraph (2) (soundness requirements). The administrative sanctions include:

1. Written warning; 
2. Dismissal and/or replacement of directors or management of the Incubation MFI; 
3. Suspension of business activities, partially or entirely; 
4. Administrative fines; and/or 
5. Removal from the Incubation MFI registry at the Regency/Municipal Regional Government. 

Sanctions are imposed according to the level of violation and determined by the Head of the Regency/Municipal Region based on recommendations from the Regional Inspector. Incubation MFIs that have been removed from the registry are prohibited from continuing their business activities. If they continue to operate, sanctions shall apply in accordance with laws and regulations in the financial services sector. Specifically, for Incubation MFIs established under government programs that are sanctioned, their directors or management must return the Revolving Funds through the state treasury/regional treasury.

Development and Supervision of Small-Scale MFIs

In addition to regulating Incubation MFIs, GR 6/2026 also regulates the development and supervision of Small-Scale MFIs. Article 45 paragraph (1) emphasizes that Regency/Municipal Regional Governments carry out this task in accordance with provisions set by OJK. The scope of development and supervision as regulated in Article 45 paragraph (2) includes the receipt and analysis of financial reports, receipt and analysis of other reports, preparation of inspection work plans, implementation of inspections and follow-up actions, imposition of administrative sanctions (excluding license revocation and fines), and recovery measures for Small-Scale MFIs that do not meet soundness levels. Development is carried out by the regional office responsible for cooperative affairs, while supervision is conducted by the Regency/Municipal Regional Inspectorate.

Regarding reporting, Article 45 paragraph (8) requires Regional Governments to prepare and submit reports on the results of development and supervision of Small-Scale MFIs to OJK every 12 (twelve) months, no later than 2 (two) months after the end of the reporting period. OJK subsequently provides input on the implementation of such development and supervision.

 

Transitional Provisions

Pursuant to Article 49, starting from 4 February 2026, Regency/Municipal Regional Governments must immediately open registration for MFIs that are not yet licensed by OJK to become Incubation MFIs. The registration period is limited until 12 January 2026. This means that MFIs that have not registered as Incubation MFIs by that date are prohibited from conducting business activities. If they continue to operate despite the prohibition, they are subject to sanctions in accordance with laws and regulations in the financial services sector. Specifically, for MFIs established under government programs that fail to register within the deadline, their directors or management must return the Revolving Funds received through the state treasury/regional treasury, and if such funds are not returned, collection mechanisms shall apply in accordance with applicable laws and regulations.

In addition, Article 50 provides that managers of community Revolving Funds under the former National Program for Community Empowerment (PNPM) Mandiri Perdesaan are excluded from the scope of GR 6/2026. The management of such Revolving Funds continues to be carried out in accordance with applicable laws and policies implemented by ministries/agencies responsible for village community empowerment.

 

Closing

GR 6/2026 provides legal status, development, and supervision for MFIs operating without licenses through the designation of Incubation MFIs. This regulation requires Incubation MFIs to register with Regional Governments no later than 12 January 2026 to avoid prohibition from operating. Incubation MFIs must submit periodic reports, provide transparent information, and maintain institutional soundness. Through strict supervision and the imposition of administrative sanctions for violations, this regulation aims to protect the public, ensure healthy financing access for MSMEs, and encourage Incubation MFIs to transform into officially licensed Financial Service Institutions (FSIs) under OJK.