Indonesia’s venture capital (VC) market remains relatively small compared to its potential, and compounding this issue further, what little funding exists is heavily concentrated in Jakarta. This leaves regional MSMEs underserved and more challenging to scale.

This is where public markets can step in to close the gap. The Indonesia Stock Exchange (IDX), through its development and acceleration boards, is uniquely positioned to provide a catalyst pathway for growth companies. Lessons from India’s NSE EMERGE and China’s Beijing Stock Exchange (BSE) show how strategic reforms can help create vibrant, inclusive listings ecosystems.

Indonesia has already taken important steps. The ambitious 2024-2028 road map of the Financial Services Authority (OJK) envisions a thriving venture capital industry empowering MSMEs and driving national economic growth.

Recent enforcement actions (July 9, 2025, Tempo.co) demonstrate commitment to maintaining standards. Simultaneously, the 0.18 percent growth in VC financing across productive sectors in early 2025 signals nascent momentum in the real economy (July 15, 2025, Bisnis.com)

The Acceleration Board currently caters to companies with assets below Rp 250 billion (US$15 million), which, with the Development Board, will create pathways for smaller enterprises. The IDX Incubator program has also yielded 228 MSMEs listings, with 44 joining the Acceleration Board in May alone.

However, broader concerning trends persist. Initial public offering (IPO) volumes in Indonesia declined 44 percent in the first half of the year (TNGlobal), with average deal sizes increasing, suggesting that only larger companies are accessing public capital. The very companies Indonesia needs to drive its next wave of growth remain undercapitalized.

The current approach treats public listings primarily as exit mechanisms, reflected in the OJK road map’s categorization of the IDX as an “exit strategy”. Additionally, it carries an underlying risk where public markets become mere liquidity vehicles rather than platforms for sustainable growth.

This approach sends a different signal to the market, contrasting to what Indonesia really needs: a seamless pipeline that nurtures enterprises from inception to maturity.

Compounding this further, Indonesia risks high-potential enterprises seeking listings elsewhere, especially in Hong Kong and Singapore, where regulatory and funding landscapes prove more accommodating. This will result in long-term loss of market capitalization and diminished domestic reinvestment.

The immediate goal is clear: to transform Indonesia's capital markets from a collection of well-intentioned programs into an ecosystem that can facilitate enterprises’ journey from early stage ventures into sustainable public companies.

The solution lies in reimagining the IDX acceleration and development boards as systematic growth engines. This entails strengthening screening processes to prioritize business fundamentals over short-term liquidity needs, while implementing comprehensive governance frameworks to safeguard both issuers and investors. Equally important are educational programs that foster a more robust and sustainable market environment.

In the first half of 2025, China, India and the United States dominated global IPO activities, indicating their collective prowess within the international capital market development.

Greater China alone captured one-third of global IPO proceeds, according to China Briefing. The Beijing Stock Exchange (BSE) has become a magnet for innovation-driven small and medium enterprises (SMEs), with over 80 percent of the listings in strategic sectors like high-tech manufacturing, AI, energy and biotech (Financial Times), the sectors that are aligned closely with the national industrial policy. This success stems from a comprehensive ecosystem of support that provides training, credit assistance and financing access for tech-focused SMEs, including favorable bank loans and convertible bond issuance.

Launched in November 2021, the bourse incentivizes intermediary organizations through a scoring system that rewards investments among early stage, technology-focused enterprises, PRNewswire reported. The result: a self-reinforcing cycle where policy direction, market infrastructure and private capital align well with wider national development priorities.

In India, continued IPO strength in 2025 reflects sustained government backing and rising retail investor participation. The BSE SME exchange surpassed 600 company listings, raising approximately $1.3 billion in capital, according to The Economic Times. The country’s NSE EMERGE platform streamlined processes for smaller players, with recent proposals to lower price caps and reduce volatility while maintaining accessibility, the Times reported.

These examples provide a robust blueprint for Indonesia to develop integrated engines for early stage capital formation through combining policy support, ecosystem development and investor activation.

To chart a stronger and more competitive capital market pathway, Indonesia should prioritize three reforms.

First is regulatory streamlining. Reform the current, prohibitively costly financial thresholds and due diligence for emerging enterprises, following Singapore’s reduction of IPO prospectus requirements and financial reporting obligations (May 15, 2025, The Business Times), removing requirement for third-party profit attestation to allow for reporting using board-certified profit projections.

Second are sector specific incentives. Targeted regulation easing and incentive programs to encourage listings and boost sector-specific ecosystems, aligning with Indonesia’s high-potential sectors, such as digital innovation, green technology, renewable energy and health care.

Third is ecosystem integration. Introduce incentive structures rewarding VC firms, investment banks and institutional investors for supporting early stage enterprises, mirroring China’s scoring systems and India’s robust top-down support.

Indonesia does not need to start from scratch. The IDX’s development and acceleration boards already exist, and the country possesses the regulatory foundation, demographic dividend and growing digital economy to become one of Asia’s most dynamic capital markets.

Existing platforms must, however, evolve into dynamic engines that attract high-quality firms, offer investor confidence and serve national development goals. Lessons from China and India show that structured capital market development alongside systematic reform can channel domestic savings toward productive investment.

Success demands coordination across venture capital, regulatory bodies and market infrastructure. The question is not whether Indonesia can compete regionally, but whether policymakers will commit to the systematic reform needed to make its capital markets fully fit for purpose.

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The writer is a principal at Arthur D. Little Malaysia.