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n his speech during the opening of the recent Indonesia E-Commerce Summit & Expo 2016, President Joko “Jokowi” Widodo expressed his anxiety about the development of start-up companies in Indonesia, which at present still lags behind other countries.

During the event, the President promised that this year the government would give more attention and support, in terms of funding, to stimulate the development of the start-up ecosystem.

The recent takeover of local online marketplace Lazada Indonesia by Chinese e-commerce company Alibaba should remind us of the great potential of start-ups in the country. If Jokowi keeps his promise to increase start-up companies’ access to funding, there will surely be more entrepreneurs involved in the establishment of start-ups.

Although many start-up founders use their own funds to support their businesses, start-ups need broader access to funding for setting up a sustainable business. The emergence of financial technology or fintech companies is an alternative source of financial support for start-ups.

The term “fintech” is increasingly common in the public lexicon. The European Union Capital Market Union (CMU) defines “fintech” as the broader universe of technological innovations with potentially transformative implications for financial systems.

An eye-opening fact about fintech is the increasing popularity of crowdfunding platforms. Crowdfunding platforms are basically online based businesses that provide an online marketplace to match investors and entrepreneurs as investees.

A report from European Union CMU states that crowdfunding platforms are broadening access to finance for young and innovative firms, and can be an alternative to complement bank financing. Further, the report explained crowdfunding could offer another benefit to firms as a marketing tool and source of insight and information about their business.

The idea is simple but it has had an enormous impact on start-ups. Due to this significance, it was also stated in the report that the crowdfunding sector was included in the European Union Capital Market Action Plan in 2016 to boost capital mobilization in Europe and channel it to all companies, including start-ups and other small-medium enterprises.

A report from Accenture in 2015 stated “In 2015, the majority of the financial services industry — globally — began to embrace the potential of fintech in a big way. At Accenture, we felt the impact in Asia where start-ups and clients from Tokyo to Jakarta contacted us to talk more about fintech”. The market for Fintech in Indonesia is there and is predicted to grow significantly in 2016.

Fintech, and especially the crowdfunding sector, could be a smart solution to overcome the ‘going-concern’ issue, especially related to funding requirements. Besides that, sophisticated investors who are willing to make high-risk investments in start-ups, can also act as watchdogs for businesses, so the start-up ecosystem can achieve sustainable growth in long term.

The Indonesia Stock Exchange (BEI) is currently conducting a joint project with the Indonesian Chamber of Commerce and Industry (Kadin) to facilitate the Initial Public Offerings (IPO) of start-up companies. This process can be confusing since the advent of crowdfunding platforms. The crowdfunding platform mechanism shares some similarities with the conventional capital market. The idea of matching investors and investees for capital mobilization and business expansion, are exactly what a firm expects from an IPO process.

When an IPO seems too ‘heavy’ and might prevent start-up companies from securing investment-based funding, fintech might be a better approach for supporting start-up companies in various industries.

Entrepreneurs will always seek the opportunity to get high efficiency in every aspect of their business including in searching for sustainable funding. The advantage of unburdened regulatory aspects of the fintech industry will simplify the process and relieve them of lengthy administrative processes.

There are many perspectives about how crowdfunding platforms can be optimally used by investors, either as a source of alternative funding in the early stages of a start-up, until they ready for an IPO or possibly as a total substitute of an IPO.

But whatever it is, the competition between fintech crowdfunding and IPOs conducted through the Indonesia Stock Exchange will never be an issue as long as the mechanism of investment-based funding for start-up firms is clearly stated in regulations.

Moreover, the crowdfunding platforms might become a good way for the Indonesia Stock Exchange and Kadin to prepare the “incubator” for start-up firms in Indonesia, to approach investors and investees, and reduce bureaucracy.

The Financial Services Authority (OJK), which controls financial services including the capital market is still in the process of arranging the regulations regarding fintech. The regulation should be formulated wisely and take many aspects of the issue into consideration, not only the interests of the parties in the financial services industry, but also the potential growth of fintech. With the regulation, fintech companies will have the legal basis to operate, and more importantly not cause disruption to the country’s financial system.
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The writer is a compliance auditor at the Indonesia Stock Exchange.