The Financial Services Authority’s (OJK) office. (

The Financial Services Authority (OJK) is calling for financial technology (fintech) firms and local administrations to raise funds through equity crowdfunding and municipal bonds, respectively, in an effort to increase capital market activity.

The OJK earlier this year issued a regulation on equity crowdfunding that enables start-ups as well as small and medium enterprises (SMEs) to raise funds using equity crowdfunding platforms, without having to go through initial public offerings (IPOs).

So far, two equity crowdfunding platforms had registered with the OJK during a period called the regulatory sandbox, but their names could not be revealed yet, Fakhri Hilmi, OJK deputy commissioner for capital market monitoring division II, said in Jakarta recently.

A regulatory sandbox is similar to an incubation process, in which fintech companies arrange their products and business models while the financial regulator actively assesses regulations that will support them.

The equity crowdfunding platforms will act as underwriters to facilitate start-ups and SMEs in offering some of their shares to a group of people through private placements over a period of time until they manage to gather the intended amount.

The platforms will also act as security brokers and investment managers for the investors.

Fakhri said that, although the platforms were allowed to trade the companies’ shares, the OJK would not encourage them to trade the shares like regular stocks at the Indonesia Stock Exchange (IDX).

“We intend to make equity crowdfunding platforms tools of investment, not trading,” he said, adding that the regulation would hopefully make the country’s capital market more inclusive and increase the number of domestic investors.

Djustini Septiana, OJK deputy commissioner for capital market monitoring division I, said that, after obtaining their licenses, the platforms would be required to report regularly to the OJK. The reports would include aspects like share issuances and total fund collection.

The regulation, she said, also stipulated the number of investors, the maximum amount of investment and offering as well as the period of offering.

“Only limited liability companies [PT] valued at under Rp 10 billion [US$710,555] and not controlled directly by a conglomerate or subsidiary of a publicly listed company are eligible for fundraising through this method,” she said.

She added that the regulation would allow those companies to seek up to Rp 10 billion in funding over a 12-month period, in which they could conduct more than one offering, each lasting for 60 days.

The regulation, she said, would also limit the amount of investment from the investors in order to protect them from the risks that might entail.

At the same occasion, OJK executive head for capital market Hoesen said the financial regulator expected more local administrations to participate in municipal bond issuance. While the regulation had been issued in late 2017, no provincial, regency or city administrations had made use of this funding option yet, he said.

He acknowledged that the slow progress was caused by the complicated nature of municipal bonds.

“Before issuing bonds, local administrations must set up a dedicated team to handle the management and investor relations,” he said, adding that they would also have to obtain permission from the respective regional legislative council (DPRD) before being assessed by the Finance Ministry and the Home Ministry.

Despite the slow start, he said, the OJK was aiming for 10 municipal bonds issuances this year, as 10 regions were currently considered eligible to issue the securities based on their financial state and planned projects.

Last year, the administrations of West Java, East Java, Central Java and South Kalimantan expressed interest in issuing municipal bonds as an alternative way to finance infrastructure development in their regions.

Hoesen added that the OJK continued to work with the Finance Ministry and the Home Ministry to encourage and help regions issue municipal bonds.

Not only did municipal bonds widen the range of capital market instruments, they also made local administrations less dependent on state and regional budgets, he said.

“They can now seek funding from the private sector to build necessary infrastructure for their regions,” he said.