“Through the cooperation with KSEI, the administration and settlement transactions [of commercial papers] could be conducted scriplessly and will also avoid falsification of commercial papers,” said Dody in Jakarta on Friday following the signing of the memorandum of understanding (MoU) with KSEI.

Budi said the presence of commercial paper in the country’s money market would aid the central bank in transmitting its monetary policy to the market, as well as provide more options for investors.

Prior to the 1998 financial crisis, commercial papers such as bonds were among the most popular instruments used by companies to finance expansion. Their popularity waned after the crisis as trust from the market in commercial papers declined because of many defaults triggered by maturity and currency mismatches, as well as the issuing of falsified commercial papers because of a lack of oversight by the authorities, said the head of BI’s department of financial market development, Agusman.

Agusman said the central bank had stepped up efforts over the last two years to improve the regulatory framework of commercial papers’ issuance in a bid to revive the market for the instrument.

BI had issued a central bank regulation (PBI), No. 19/9/PBI/2017 on issuance and transaction of commercial papers, which outlined the requirement for non-bank corporations to issue the instrument.

The regulation states that non-banking firms have to be listed on the Indonesia Stock Exchange (IDX) or have issued bonds or sukuk (Islamic bonds) through IDX over the past five years from the date of the registration.

As for unlisted firms, the regulation required them to have been in operation for at least three years. New private corporations operating less than three years would also be eligible to issue commercial papers as long as the firms provide guarantees. The unlisted firms should also possess at least Rp 50 billion (US$3.45 million) in equity and book net profits for the latest year before the bond offering.

The commercial papers are issued with a discount system, with a maturity period varies from one month, to three months, six months, nine months and 12 months. The instrument should be published scripless with a minimum value of Rp 10 billion or $1 million or its equivalent in another foreign currency.

BI’s director of financial market development, Yoga Affandi, said there was immense potential for the commercial papers in the money market, estimating that about 90 blue chip companies could immediately utilize the instrument to pull in funding of between Rp 4.5 trillion and Rp 9 trillion.

The deputy commissioner for capital market monitoring, division II, of the Financial Services Authority (OJK), Fakhri Hilmi, said the corporation could utilize commercial papers as alternative sources of short-term funding, other than borrowing from the banking sector.

“The presence of the commercial papers would enrich the options for sources of funding in the money market for investors, who often relied on conventional [investment] portfolios such as deposits and mutual funds,” he said.

Data from the OJK revealed that 75.44 percent of national financing in 2018 came from the banking sector and the remaining 24.56 percent from the non-bank sector.

He added that the liquid commercial papers that were tradeable in the secondary market would encourage the establishment of a short-term interest rate structure, which would support the overall interest rate structure and improve the transmission of monetary policy.

Fakhri said the OJK was also drafting a regulation on medium-term notes with a view to issuing it within the year, saying that such an issuance would further deepen Indonesia’s financial market going forward.

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