20 January, 2019
1. General
The Indonesian Financial Services Authority (“OJK”) has issued a long-awaited regulation on equity crowdfunding that it is hoped will provide a solid foundation for the development of the industry going ahead. The new regulation forms part of a series of instruments issued by the OJK since 2016[1] to establish a regulatory framework governing the financial technology (fintech) sector as a whole.
As with other disruptive business models, such as app-based transportation, fintech (including crowdfunding in general) poses particular challenges for the regulators. In specifically addressing the rapidly growing equity-crowdfunding business, the OJK needed to come up with a formula that balanced the interests of all involved, including those of crowdfunding companies, investors and borrowers, the interests of the conventional financial-services industry (primarily the banks), and the public interest by affording protection from fraud.
These challenges are reflected by the fact that it took some five months for the new regulation to be promulgated following publication of the original draft in August 2018.
The regulation (OJK Regulation No. 37/POJK.04/2018 / “Reg. 37”)[2] entered into effect on 31 December 2018.
2. What is Equity Crowdfunding?
Equity crowdfunding, also sometimes referred to as investment crowdfunding, crowd-investing, or crowd equity, generally refers to the provision of equity-based financing to startups or small enterprises by broad groups of investors (the “crowd”). In return for an investment, the investor receives shares in the business. If the business grows and prospers, then the value of the investor’s shares will also grow, thus providing a return on their investment. Conversely, the investor runs the risk of not receiving the anticipated return on their investment or even losing their investment altogether if the business fails to grow or eventually collapses.
As a considerable degree of risk is involved in equity crowdfunding, and the businesses that seek financing are usually not considered eligible for bank loans (“unbankable”), it serves a very useful function by filling gaps in conventional financing for startups and small enterprises.
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For further information, please contact:
Elsie F. Hakim, Partner, Ali Budiardjo Nugroho Reksodiputro (ABNR)
ehakim@abnrlaw.com
[1] The first fintech regulation issued by the OJK was Regulation No. 77/POJK.01/2016, which specifically governed peer-to-peer lending. The most wide-ranging regulation on fintech issued to date by the OJK is Regulation No. 13/POJK.02/2018 on Digital Financial Innovation in the Financial Services Sector, which entered into effect on 16 August 2018. This provides an overarching framework for the regulation and development of fintech in general.
[2] OJK Regulation No. 37/POJK.04/2018 on IT-based financing through an offer of equity (Peraturan Otoritas Jasa Keuangan Nomor 37/POJK.04/2018 tentang Layanan Urun Dana Melalui Penawaran Saham Berbasis Teknologi Informasi
