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Loan Participation Agreement for Indonesia

Loan Participation Agreement Template for Indonesia

A Loan Participation Agreement under Indonesian law is a contractual arrangement where a financial institution (the grantor) sells a participation interest in a loan to another institution (the participant), while maintaining the direct relationship with the borrower. The agreement is governed by Indonesian law and must comply with OJK regulations and Bank Indonesia requirements. It details the terms of participation, including payment arrangements, risk sharing, information rights, and administration of the underlying loan. The document incorporates specific provisions required under Indonesian banking regulations and addresses local law considerations regarding assignment of rights, security interests, and enforcement mechanisms.

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Loan Participation Agreement

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What is a Loan Participation Agreement?

The Loan Participation Agreement is a crucial document in Indonesian banking and finance practice, used when a lender wishes to transfer economic interest in a loan while maintaining the direct lending relationship with the borrower. This structure is particularly valuable in the Indonesian context where direct loan transfers may be restricted or impractical. The agreement must comply with OJK Regulation No. 40/POJK.03/2019 and relevant Bank Indonesia regulations, particularly regarding asset quality assessment and foreign exchange transactions. It's commonly used for risk sharing, portfolio management, and regulatory capital management purposes. The document details participation percentages, payment mechanisms, voting rights, and information sharing arrangements, while ensuring compliance with Indonesian banking secrecy laws and financial regulations. This type of agreement is especially relevant in scenarios involving cross-border transactions, large corporate loans, or project financing where risk sharing is desired.

What sections should be included in a Loan Participation Agreement?

1. Parties: Identifies the original lender (grantor) and participant(s), including their complete legal names and addresses

2. Background: Describes the underlying loan agreement, the original lender's desire to sell a participation, and the participant's desire to purchase it

3. Definitions: Defines key terms used throughout the agreement, including Participation, Participated Interest, Underlying Loan, etc.

4. Sale and Purchase of Participation: Details the participation interest being sold, purchase price, and effective date

5. Payments and Distributions: Specifies how payments received from the borrower will be shared between grantor and participant

6. Rights and Obligations of the Parties: Outlines the respective rights and duties of the grantor and participant

7. Administration of the Underlying Loan: Describes how the underlying loan will be managed and what rights the participant has in decision-making

8. Representations and Warranties: Contains standard representations and warranties from both parties

9. Communication and Information Rights: Details what information the grantor must provide to the participant about the underlying loan

10. Confidentiality: Establishes confidentiality obligations regarding the agreement and underlying loan information

11. Tax Provisions: Addresses tax implications and responsibilities

12. Events of Default: Lists circumstances constituting default and consequences

13. Termination: Specifies how and when the agreement can be terminated

14. Governing Law and Jurisdiction: Specifies Indonesian law as governing law and jurisdiction for disputes

15. Miscellaneous: Standard boilerplate provisions including notices, amendments, assignments, etc.

What sections are optional to include in a Loan Participation Agreement?

1. Multi-Participant Provisions: Required when there are multiple participants, detailing voting rights and decision-making processes

2. Security Arrangements: Needed when the underlying loan is secured, describing how security interests are shared

3. Risk Participation Provisions: Used for unfunded risk participations where no upfront payment is made

4. Currency Exchange Provisions: Required when the participation involves multiple currencies

5. Regulatory Compliance: Specific provisions required for compliance with particular Indonesian banking regulations

6. Sub-Participation Rights: Optional section allowing/restricting the participant's right to grant sub-participations

7. Buy-Back Provisions: Optional provisions allowing the grantor to buy back the participation under certain circumstances

What schedules should be included in a Loan Participation Agreement?

1. Schedule 1 - Details of the Underlying Loan: Contains key information about the underlying loan including borrower details, amount, interest rate, maturity

2. Schedule 2 - Participation Details: Specifies the exact percentage/amount of participation and purchase price

3. Schedule 3 - Form of Transfer Certificate: Standard form for documenting the transfer of the participation interest

4. Schedule 4 - Administrative Details: Contains contact details and bank account information for both parties

5. Schedule 5 - Form of Participation Certificate: Standard form evidencing the participant's interest

6. Appendix A - Underlying Loan Agreement: Copy of the original loan agreement (may be redacted)

7. Appendix B - Required Notices and Forms: Contains any regulatory notices or forms required under Indonesian law

8. Appendix C - Calculation Methods: Details the methods for calculating participation shares, interest, and other amounts

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

Indonesia

Publisher

Genie AI

Document Type

Financing Agreement

Cost

Free to use
Relevant legal definitions




































Clauses






























Relevant Industries

Banking

Financial Services

Investment Management

Insurance

Private Equity

Asset Management

Corporate Lending

Project Finance

Infrastructure

Real Estate

Mining

Oil & Gas

Manufacturing

Agricultural Finance

Telecommunications

Relevant Teams

Legal

Finance

Treasury

Risk Management

Compliance

Credit Administration

Portfolio Management

Syndications

Corporate Banking

Regulatory Reporting

Operations

Credit Analysis

Transaction Management

Investment Management

Relevant Roles

Chief Financial Officer

Head of Legal

Treasury Manager

Risk Management Officer

Compliance Officer

Credit Risk Manager

Portfolio Manager

Syndications Manager

Legal Counsel

Banking Operations Manager

Investment Officer

Relationship Manager

Credit Administrator

Finance Director

Corporate Banking Manager

Regulatory Reporting Officer

Transaction Manager

Senior Credit Analyst

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