The acquisition of Indonesian multifinance entities by foreign financial companies is on the rise, with the recent example being MUFG Bank Ltd, a Japanese financial group, acquiring PT Mandala Multifinance Tbk (MFIN).
Shareholders of PT Mandala Multifnance, including PT Jayamandiri Gemasejati (JG Motor), have entered into a conditional sale agreement, selling their 80.6 percent stake in MFIN valued at Rp 7.04 trillion.
The completion of the transaction is expected in early 2024, subject to approvals from the Financial Services Authority (OJK) and other customary requirements. MUFG Bank will hold a 70.6 percent stake in Mandala, while Adira Finance will possess a ten percent stake.
Indonesia’s demographic draws foreign investors
Foreign investors are drawn to Indonesia’s multifinance and leasing business due to its favorable demographics. MUFG Bank views Indonesia as a crucial market in the region, prompting its decision to expand operations here in Indonesia.
Additionally, Indonesia’s GDP is the highest in Southeast Asia, providing ample room for growth. The OJK reported that several small and medium finance companies were acquired by foreign investors as of May, driven by the sluggish credit growth in Singapore, Japan, and Korea, making prospects in other countries, such as Indonesia’s multifinance industry, more appealing.
With a population of 275 million people and a low credit ratio, financing companies can capitalize on Indonesia’s vast potential.
They can offer a range of products, including leasing, consumer financing, credit cards, investment capital, venture capital, and multipurpose financing. Notably, buy-now-pay-later (BNPL) services have experienced significant growth in recent years.
Overall performance of the financing sector
The performance of financing firms remains strong, as indicated by the increasing value of recorded financing receivables, rising by 15.13 percent year-on-year to Rp 438.85 trillion in April.
Working capital financing and investment also saw substantial growth, reaching 33.4 percent and 17.9 percent, respectively.
The gearing ratio of financing companies has also shown a notable increase of 2.17 times year-on-year and 2.11 times month-over-month in April. However, it is worth noting that financing companies’ gearing ratio remains well below the maximum limit.
The gearing ratio reflects a company’s dependence on debt in its capital structure, with a lower ratio indicating a lower risk for creditors and investors.