Securities Crowdfunding (“SCF”) funding scheme is a concept of public fund raising through online collection as one of funding options for small businesses, or commonly referred to as Micro, Small and Medium Enterprises (“MSMEs”), and start-up companies.In Indonesia, the legal basis for the implementation of SCF is the Financial Services Authority Regulation No. 57/POJK.04/2020 of 2020 concerning Securities Offerings Through Information Technology-Based Crowdfunding Services as amended by Financial Services Authority Regulation No. 16/POJK.04/2021 (“POJK No. 57/2020”).

Prior to the issuance of this POJK regarding SCF, the Financial Services Authority (“OJK”) had previously issued a POJK regarding Equity Crowdfunding (“ECF”), namely Crowdfunding Services through Information Technology-Based Stocks Offering. However, to accommodate the needs of MSMEs and start-up companies in utilizing crowdfunding services as a source of funding, OJK has expanded the Securities instruments that can be offered. In SCF, the Securities instruments that can be offered are not only in the form of stocks (equity Securities) but also in the form of debt Securities or Sharia Bond (Sukuk).

The SCF scheme is open both to businesses that are raising capital to sustain their business in general as well as for the purpose of funding a specific project, such as the construction of certain facilities, installation of equipment to support work, and even filmmaking.

Securities Crowdfunding Service (SCF) = Mini IPO

People who are not familiar with Securities Crowdfunding (SCF) may compare it to the type of fundraising that is already known to the public, namely funding in the conventional capital market (“Capital Market”). Both are indeed public capital raising that allow participation in the form of stocks and debt securities or Sukuk. For MSMEs and start-up companies, funding through SCF is akin to relatively larger companies conducting an Initial Public Offering (“IPO”) through the Capital Market, where SCF provides access to capital from the public, so it can be compared to a “Mini IPO”. Through SCF, MSMEs and start-up companies can “go public” faster, easier and relatively cost friendly.

On the other hand, there are also basic differences between a Mini IPO and an IPO. In an IPO through the Capital Market, the parties involved have more or less the same roles as those involved in a Mini IPO. In an IPO, the company offering its Securities to the public through the Indonesia Stock Exchange is referred to as the “Emiten”,[1] while in a Mini IPO it is referred to as the “Issuer”.

In this Mini IPO scheme, the Issuer and the Securities offered are not listed on the Indonesia Stock Exchange. The Issuer will appoint an “Organizer” who will further create an “exchange” for the Securities it offers through an electronic system. In addition to providing an “exchange” through an electronic system provided by the Organizer, the Organizer in the Mini IPO also acts like a securities company that assists the Issuer in the IPO process. In offering the Securities, the Organizer will first analyse the Issuer and then offer the Securities issued by the Issuer to the “Investors”. To maintain its credibility, especially towards OJK and the Investor, the Organizer must conduct an in-depth study of the Issuer so that the Securities from the Issuer offered by the Organizer to the Investor have a value in accordance with the offering document submitted to the Investor.

There is another difference in terms of supporting professions, where Capital Market supporting professions such as public accountants and legal consultants are generally required in IPOs, but in Mini IPOs they are not required, however in its implementation the Organizer may require so that these supporting professions assist the Issuer in conducting the Mini IPO.

Unlike an IPO, there are certain restrictions on SCF, such as a maximum of IDR 10,000,000,000 (ten billion Indonesian Rupiah) of stocks offered within a period of 12 (twelve) months, and other restrictions that will be discussed in the next section. The implication of the limitations on the nominal and frequency of Securities offerings through SCF is that the platform cannot be used as the only funding method used by an MSME or start-up company.

In addition, SCF is only conducted through an electronic system, unlike the Indonesia Stock Exchange which still enables offline bidding and trading.

Characteristics of Crowdfunding Services

Further explanation of the Crowdfunding Service specifically, among others:

  1. Parties Involved

There are 3 (three) parties involved in the Crowdfunding Service scheme, namely: Organizer, Issuer, and Investor.

a. Organizer

Organizer means an Indonesian legal entity that provides, manages and operates the Crowdfunding Service.[2] The general requirements for Organizer include:

  1. The Organizer must have a business license from OJK;[3]
  2. Organizer who has obtained a business license from OJK must be registered as electronic system operators with the Ministry of Communication and Information Technology; [4]
  3. The Organizer is an Indonesian legal entity in the form of a limited liability company or service cooperative;[5]
  4. Organizer in the form of a limited liability company can be established and owned by:
    • Indonesian citizens and/or Indonesian legal entities; and/or
    • foreign citizens and/or foreign legal entities, either directly or indirectly at a maximum of 49% (forty-nine percent);[6]

5. For Organizer in the form of a limited liability company, the paid-up capital is at least IDR 2,500,000,000 (two billion five hundred million Indonesian Rupiah) at the time of applying for licensing and for Organizer in the form of service cooperatives, the internal capital is at least IDR 2,500,000,000 (two billion five hundred million Indonesian Rupiah) at the time of applying for licensing;[7]

6. the Organizer must have:

    • human resources with expertise and/or background in Information Technology; and
    • human resources who have the expertise to conduct a review of the Issuer.[8]

Issuer

Issuer means an Indonesian business entity in the form of a legal entity or other business entity that issues Securities through Crowdfunding Service.[9] The requirements for the Issuer in Article 46 POJK No. 57/2020, the Issuer shall not be:

  1. a business entity that is controlled either directly or indirectly by a business group or conglomerate (based on the Explanation of POJK No. 57/2020, “conglomerate” means companies within a group or consortium due to ownership and/or control relations);
  2. a public company or a public company subsidiary; and*)
  3. business entities with a net worth of more than IDR 10,000,000,000 (ten billion Indonesian Rupiah), excluding land and buildings of the business premises.

Note:

*) We are still waiting for confirmation from OJK whether this conjunction is only “and” not “and/or”.

Investor

Investor means a party who purchases the Issuer’s Securities through the Crowdfunding Service.[10] The requirements for the Investor who purchases Securities through the Crowdfunding Service are:[11]

  1. having a Securities account at the Custodian Bank specifically for depositing the Securities and/or funds. If the Investor purchases Securities through more than 1 (one) Organizer, the Investor must use a different Securities account for each Organizer;[12]
  2. having capability to purchase the Issuer’s Securities; and
  3. fulfilling the criteria for Investor and the limit of Securities purchase.

Investor Criteria and Securities purchase limitations include:[13]

  1. each Investor with income up to IDR 500,000,000 (five hundred million Indonesian Rupiah) per year, may purchase Securities through Crowdfunding Services at a maximum of 5% (five percent) of income per year; and
  2. each Investor with an income of more than IDR 500,000,000 (five hundred million Indonesian Rupiah) per year, may purchase Securities through the Crowdfunding Service at a maximum of 10% (ten percent) of the income per year.

The provisions of the criteria of the Investor and the Securities purchase limit are not applicable if the Investor is:[14]

  1. a legal entity; and
  2. a party who has experience in investing in the capital market as evidenced by the ownership of a Securities account for at least 2 (two) years prior to the offering of Securities.

Among the three parties above, POJK No. 57/2020 requires several agreements, namely:

  1. agreement between the Organizer and the Issuer,
  2. agreement between the Organizer and the Investor, and
  3. debt securities or Sukuk issuance agreement between the Organizer and the Issuer, where the Organizer is the proxy of the Investor (if the Securities offered are debt securities or Sukuk).[15]

 Types of Tradable Securities

Through the Crowdfunding Service, the Issuer may offer the following types of Securities:[16]

  1. Equity Securities, such as shares or other equities that must be converted into shares;
  2. Debt Securities, such as bonds and acknowledgement of indebtedness; and
  3. Sukuk.

Specifically for debt Securities or Sukuk, they must fulfil the following conditions:[17]

  1. issued in Indonesian Rupiah;
  2. having underlying project as the basis for the issuance of debt securities or Sukuk;
  3. non-tradable;
  4. having maturity of not more than 2 (two) years;
  5. may be repaid early before the maturity, after obtaining approval of the majority holders of debt Securities or Sukuk present at the general meeting of the holders of debt Securities or Sukuk;
  6. payment of principal, interest, profit sharing ratio, margin, service fee, or return may be made periodically or at the maturity; and
  7. Sukuk issuance must obtain a statement of sharia compliance.[18]

 Restrictions on Securities Offering and Fund Raising

In the Crowdfunding Service, there are some restrictions on the securities offering and fund raising, namely:

  1. The Issuer of equity Securities is prohibited from using Crowdfunding Services through more than 1 (one) Organizer;[19]
  2. The limit of fund raising through Crowdfunding Services by each Issuer within a period of 12 (twelve) months is a maximum of IDR 10,000,000,000 (ten billion Indonesian Rupiah) or other value determined by OJK;[20]
  3. Fund raising can be done in 1 (one) or more offerings;[21] and
  4. The offering period in fund raising is at most 45 (forty-five) days.[22]

In addition, it also regulates the implementation of securities trading, where the Organizer provides a system for the Investor to trade the Issuer’s Securities that have been sold with several provisions, among others:

  1. it only applies to equity Securities in the form of stocks that have been distributed at least 1 (one) year prior to the Securities trading;
  2. it can only be done between fellow Investors who are registered with the Organizer;
  3. within a period of 12 (twelve) months it can only be done 2 (two) times;
  4. the period of implementation of Securities trading with other Securities trading shall be at least 6 (six) months; and
  5. it must not be carried out for a period of more than 10 (ten) working days.[23]

Conclusion

Although the legal basis and implementation are still quite new in Indonesia, Mini IPO or Securities Crowdfunding is an interesting funding option to be considered by MSMEs and start-up companies. At the time of writing this article, there have been quite a few of Securities Crowdfunding Organizers which have obtained OJK permits, some of which are sharia-based Organizers. Considering the large number of MSMEs in Indonesia and the increasing number of people establishing start-up companies, Mini IPO or Securities Crowdfunding has the potential to become an important instrument in Indonesia’s economic development.

Author: Almaida Askandar, Minar Julia Josetta and Alya Shafira Salim of IABF Law Firm

23rd June 2023

Footnotes

[1] Article 1 number 6 Law No. 8 of 1995 on Capital Market as amended lastly by Law No. 4 of 2023 on Development and Improvement of Financial Sector.

[2] Article 1 number 5 POJK No. 57/2020.

[3] Article 5 POJK No. 57/2020.

[4] Article 15A paragraph (1) POJK No. 57/2020.

[5] Article 8 jo. Article 10 POJK No. 57/2020.

[6] Article 9 POJK No. 57/2020

[7] Article 11 POJK No. 57/2020.

[8] Article 12 POJK No. 57/2020.

[9] Article 1 number 7 POJK No. 57/2020.

[10] Article 1 number 8 POJK No. 57/2020.

[11] Article 56 paragraph (1) POJK No. 57/2020.

[12] Article 56 paragraph (2) POJK No. 57/2020.

[13] Article 56 paragraph (3) POJK No. 57/2020.

[14] Article 56 paragraph (4) POJK No. 57/2020.

[15] Article 61 POJK No. 57/2020.

[16] Article 28 paragraph (1) POJK No. 57/2020.

[17] Article 30 paragraph (1) POJK No. 57/2020.

[18] Article 30 paragraph (2) POJK No. 57/2020.

[19] Article 31 POJK No. 57/2020.

[20] Article 33 paragraph (1) POJK No. 57/2020.

[21] Article 33 paragraph (2) POJK No. 57/2020.

[22] Article 35 POJK No. 57/2020.

[23] Article 43 POJK No. 57/2020.

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