There is no lack of financing alternatives for MSMEs in Indonesia, but low financial literacy and cumbersome loan procedures poses immediate challenges for MSMEs to finance their innovative product ideas. While the internet has opened up opportunities in the realm of MSME financing, there is currently a gap in project-based crowdfunding that could offer a digital platform for entrepreneurs to get their new product off the ground by raising smaller amounts of funding from multiple supporters.
Project-based crowdfunding, which can simplify MSME pitching by hosting the campaign details and progress in one place, is currently unregulated in Indonesia. Meanwhile, donation-based crowdfunding platforms that donate to a charity or a cause are typically registered as a non-profit organization, and are subject to the Minister of Social Affairs Regulation No. 246 of 2021 (general category) and No. 148 of 2021 (natural crises category) on the Collection of Money and Goods. Further, Government Regulation Number 71 of 2019 on the Implementation of Electronic Systems and Transactions obliges electronic system operators, from investment to donation-based crowdfunding platforms, to register with the government.
A crowdfunding regulation that supports the likes of Kickstarter and IndieGoGo can democratize the access to financing for MSMEs that seek to experiment with product innovations. Since project-based crowdfunding activities are housed on a digital platform, it requires the government institutions responsible for MSME development as well as electronic system providers to participate in the policy creation. Given that the platform matches MSMEs with public supporters, the types and levels of rewards that the supporters will receive must also be defined. Furthermore, validating the existence and operations of the MSMEs will help to ensure supporters that the business they are funding is legitimate. Finally, actively promoting project-based crowdfunding as an alternative source of funding for MSMEs can benefit businesses testing the demand for their products online while at the same time bringing their innovation ideas to reality.
For many entrepreneurs, the decision to turn into innovations depends on the ease to adopt technology, trained workforces, and multiple sources of finance. Yet, navigating the complex regulation is a major challenge for most lay business people. To expedite the economic recovery post-pandemic recession, the stakeholders in the ecosystem are urged to formulate the right policy to simplify such challenges.