The government plans to strengthen venture capital financing for startup companies, by converting small business loans (KUR) for which the government has allocated a budget of IDR 120 trillion this year. Going forward, startup companies will enjoy low interest rates comparable to the small business loan rate of 9 percent per year from venture capital financing.
Minister of Communications and Informatics Rudiantara said that the government is considering making this move because bank loans are not suitable for financing startups. "They’d all be dead if they took out bank loans. They’d get a loan today and have to repay it next month," he said on the sidelines of the Indonesian E-Commerce Summit and Expo at the Indonesia Convention Exhibition (ICE), BSD City, Wednesday (27/4).
Startup companies need easy, low-cost funding to start and develop their businesses. Rudiantara has set a target to finalise the rules on small business loan conversion this year. That way, the conversion program can be implemented next year.
Rudiantara explained that two state owned enterprises, PT Bahana Securities and PT Danareksa Sekuritas, have been considered for managing the converted funds. To make the process easier, the funds can be disbursed using existing e-commerce merchants. For example, it can be applied to Tokopedia, which has 500,000 merchants with adequate Know Your Customer principles. (Read: Indonesia Prepares R&D Budget for Startups).
Rudiantara, however, was reluctant to disclose the initial amount of the converted funds. He said that discussing the rule of law that supports this conversion is much more important. "Because it requires a lot of laws and regulations," he said.
This policy is a follow up to the Financial Services Authority’s (FSA) move to issue a regulation to support micro startup companies. The agency’s Deputy Commissioner for Non-bank Financial Institution Supervision Dumoli Pardede said that the FSA is still discussing the regulation, which will allow small and medium business (SME) to become venture capital companies with a minimum capital of IDR 1 billion. (See also: Ease of Doing Business Rank Goes Up as Capital Requirement of SMEs Relaxed).
Dumoli said the rule will complement the previous FSA regulation on venture capital, i.e. Regulation No. 34/2015 on Licencing and Organisation of Venture Capital Companies. The regulation sets the minimum capital of a venture capital company at IDR 50 billion, and the minimum capital of a venture capital cooperative or limited partnership at IDR 25 billion.
“The FSA will release the package soon. It will be more than adequate and it will be supportive in terms of guarantees,” said Dumoli in Jakarta, Thursday (21/4).
Earlier, on the same occasion, President Joko Widodo has asked the Ministry of Communication and Informatics to allocate funds in the State Budget to help develop online startup companies. The funds could be used to research new online apps.
Widodo said that neighbouring countries are currently pumping state money into supporting startup businesses. Thailand, for instance, has earmarked funds of IDR 7 trillion to create new apps. “We need to think about this carefully. If other countries do that and we don’t, we’ll lag behind.” The president, however, has not decided how much the budget will be. Most importantly, he expected the budget allocation to be bigger than Thailand’s.
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