Rp 583 billion (US$39.11 billion) worth of stocks have been issued through the country’s booming SCF industry, according to data from the Indonesian Crowdfunding Services Association (Aludi) per Aug. 16, with last year alone accounting for a staggering Rp 412 billion, far surpassing the target of Rp 300 billion.

SCF has been hailed as a way to get investors to jump into the breach when banks are unwilling to extend credit to SMEs. This entails risks, but SCF platforms say they carefully curate businesses and apply meticulous filters.

“We thoroughly check [the issuers], both financially and legally. We make sure they already are a PT, we make sure their business has been running for one or two years, and we also pay attention to their revenue and profit, whether they have reached the amount we want them to meet,” said Heinrich Vincent, CEO of Bizshare, one of Indonesia’s biggest SCF platforms.

Vincent further told The Jakarta Post that SCF firms also took into consideration business potential to weigh up what issuers plan to do with the funds they are looking to get.

“The platforms can make and stretch their own filters. There are some minimum requirements governed by [OJK] regulations, but how deep we explore and use them as risk mitigation, that’s up to each platform to decide,” Vincent said.

“Since it’s people’s money, we have to conduct detailed due diligence so we can protect the investors. […] We use services of professional analysts both for the financial and legal aspects to protect the investors,” he vowed, adding: “When listed, [SMEs will] already have a comprehensive prospectus for investors to peruse.”

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SCF platform LandX says it relies on the same strategy to ascertain businesses’ worthiness for public funding.

“To protect investors, the companies listed in the LandX app have gone through a strict quantitative and qualitative selection. However, we cannot completely rule out the possibility of failure,” an unnamed spokesperson for LandX said by email.

Jakarta National University lecturer Dianta Sebayang disagrees. “[Investor protection] needs to be fixed through regulations, because it hasn’t been decisively regulated. [To protect investors,] regulations could, for example, stipulate the hedging of funds collected for a certain amount of time,” Dianta said.

Nevertheless, Dianta commended SCF for what it had to offer: “SCF [allows for] faster and more flexible funding than banks or the stock market,” he said.

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Walking an SME to the door of an initial public offering (IPO) is the ultimate goal of SCF, but the question is whether the company has its eyes fixed on the same goal.

Vincent explained that some companies preferred to cultivate their private status and others just did not want to get ahead of themselves.

“Some holding companies [have the potential to go public]. But most of them don’t need that much money. Rp 10 billion is enough money to grow. […] The next step is, of course, an IPO, but they definitely need time,” said Vincent.

Moreover, SCF can be a training ground for the issuing companies to practice good corporate governance.

“Some benefits investors get are routine dividends and transparent financial reports, just like stock market [investors get]. So, this is like a practice run for the SMEs,” said Vincent.

Much like the stock market, SCF platforms also manage a secondary market beside the primary one where investors buy shares directly from the issuers. Based on OJK Regulation No. 57 /POJK.04/2020, SCF service providers are limited to two windows of 10 days each for secondary market trading.

The reason for this limitation, according to Vincent, is that the regulating body is still collecting feedback on the new market.

Bizshare logged Rp 4.5 billion worth of transactions in the 10 days of secondary market trading from July 21 to Aug. 3.

“Mostly, those who get in are long-term investors, and this secondary market serves as an exit strategy for them. They don’t typically look to earn from trading, they are dividend-investing,” Vincent explained.

Vincent revealed that industry players are lobbying the OJK for more secondary market windows to attract more investors.

As of Aug. 16, Aludi reported a total of 238 equity issuers, four sharia security issuers, three obligor issuers and 57 sukuk issuers inside the ecosystem, with 123,566 investors currently active in SCF.

Vincent told the Post that typical investors included millennial-generation employees as well as entrepreneurs who were looking for fast returns.

“Rather than materializing a business, which equals bigger risk, they prefer investing through SCF, as they can sow their capital in many businesses,” said Vincent, explaining that diversification was as much recommended in SCF as in the stock market.

“You don’t have to be an expert to invest in SCF. On the contrary, many investors get in because they can relate to the brand itself, they trust the people behind the business. […] So, it’s not always about profit, it also has sentimental value,” he added.

The regulation limits equity issuers to one SCF platform only.

Vincent said investment through his company had increased 300 percent year-to-date to more than Rp 121 billion.

LandX, for its part, has channeled more than Rp 227 billion worth of funds from 87,336 investors since its founding in 2019.

Eleven companies have so far obtained SCF licenses from the OJK.