What is PSAK 413?
PSAK 413 is an Indonesian financial reporting standard issued by the Sharia Accounting Standards Board (DSAS-IAI). It governs impairment recognition for sharia-compliant financial assets, specifically those with defined contractual cash flows under Islamic financing structures.
Replacing ISAK 402 (Impairment of Murabahah Receivables), PSAK 413 (Impairment of Financial Instruments) introduces a modified Expected Credit Loss (ECL) model tailored for Sharia-based transactions. It aligns partially with IFRS 9, however, it is different in that it removes the use of time-value discounting to comply with Sharia principles. The standard applies to:
- Murabahah receivables
- Istishna and Qardh contracts
- Wadiah deposits
- Kafalah (guarantee) credit obligations
Key objectives of PSAK 413
PSAK 413 aims to:
- Standardize impairment accounting across Islamic financial institutions (IFIs) in Indonesia
- Introduce a consistent, forward-looking approach to loss provisioning, mirroring global practices while remaining Sharia-compliant
- Improve transparency and comparability in financial reporting for Islamic banks and cooperatives
- Provide clear guidance on impairment calculations, especially for kafalah-based credit guarantees, a critical component of Islamic lending risk
Who does it affect?
- PSAK 413 affects a wide range of stakeholders within Indonesia’s Islamic finance ecosystem:
- Sharia Commercial Banks (BUS)
- Sharia Business Units (UUS) of conventional banks
- People’s Sharia Financing Banks (BPRS), though a simplified PSAK 414 will apply here starting in 2027
- Islamic microfinance institutions and sharia cooperatives issuing defined-cash-flow products
- Sharia Supervisory Boards (DPS) involved in approving compliance of impairment methods
- Internal auditors and finance teams responsible for staging, measurement, and disclosure
- International and regional investors reviewing Islamic financial statements will also rely on PSAK 413-aligned reporting for risk assessments.
Key challenges to compliance
- Model development Sharia banks must develop ECL models that stage assets and estimate loss rates, without relying on discounting, which is prohibited under Sharia law.
- Data gaps Limited historical data on defaults, loss severity (LGD), and exposure (EAD) make ECL estimation difficult, especially for small and medium Islamic banks.
- System readiness Many banks need to upgrade or reconfigure core systems to support the new impairment logic and disclosure requirements.
- Human capital Training is essential for finance, credit risk, compliance, and IT teams, many of whom are unfamiliar with IFRS 9-style frameworks or Sharia-modified ECL logic.
- Audit and Governance alignment Internal controls, Sharia Board approval, and external audit review processes must all adapt to the new methodology.