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Invest through Equity Crowdfunding

This article published in Kompas, April 10th, 2021, page 13.

The recent development of financial technology opens up another investment options. Some investors may have built portfolios through peer-to-peer lending, now there are crowdfunding that offer investors a chance to take a profit and at the same time, helping a SME (small and medium) business to develop.

Crowdfunding allows people to raise funds to finance a business. For example, investor can crowdfund a business of boarding house or other property. They will get a share of the profit that depends on the performance of the funded companies. In general, this profit ratio can be higher that deposit interest. On the other hand, crowdfunding offers a chance for SME businesses to get funded, way more easy compared to applying for credit from banks or other financial institutions.

Crowdfund could be a new trend in Indonesia this year. OJK has issued a new regulation that could be a catalyst for the industry development. The regulation offers another option of fund raises. According on previous regulation, the issuing company can only raise funds in the form of capital share. Now with the new regulation, company can offer securities such as bonds or sukuk (sharia bonds).

This is a big improvement that offers investors an option with distinct characteristics. Shares are investment that has a high potential return from dividend and the stock price increase. But, it also came with higher inherent risk in which the company failed. However, investors can only withdraw their investments if the publisher makes a buyback or if other parties are interested in buying these shares through the secondary market.

Meanwhile, the risk of buying bonds is more moderate. Based on the OJK regulation, the term of bonds issuance is limited to maximum of two years. After that period, the issuing company has obligate to buy-back their bonds from investors. In the meantime, investors will get an interest or coupon. However, there are no secondary market available. Investors will only regain the investment at the due date.

Tips

Investors can look up at the following tips to securely invest through a crowdfunding

First, investors need to choose the correct platform. According to the regulation, platform must do a due diligence for the issuing company applicant. Better than that, platform needs to develop a methodology to assess prospective applicant. Thus, only a potential applicant with good business prospects offered to investors.

The platform also has a role in conducting publication, promotion, and business assistance to issuing company. Moreover, the platform also deals with legal affair between issuing company and investors. Another thing to be consider is the amount of fees collected by the platforms in the transaction.

Second, investors need to comply with investment limits. The OJK regulations provide an investment guide: investors with income up to 500 million Rupiah per year, can invest a maximum 5% of their incomes. Investors with higher income are allowed to invest up to 10% of their incomes.

These limits can be ignored for experienced investors with specific criteria. However, following the general rules of investment, investors should diversify their portfolios. They can diversify on several issuing company or investing on other instruments.

Third, investors need to pay attention to the economic sector, especially during the ongoing pandemic. Some sectors such as tourism and transportation have decreased performance during the pandemic. Meanwhile, several other industries such as food and beverages and technology indicate a growth.

Investors need to understand the economic sector to make better decision making. At least, investors can easily read the financial statements in the sector they understand well. It is essential since the issuing company unlikely doesn’t have their report audited by independent accountants. Investors must be able to read, understand, and ensure the issuing company financial statements.

Lastly, crowdfund investors can play an active role in helping the company’s performance, especially in marketing. Investors technically are the owner of the company, so they can do some promoting or marketing the products to their surrounding communities. This can help the company expand its market, especially for startup company that are not known yet.

Investing through crowdfunding is not only related to money and profit. Investing in the real sector like this also helps develop SME business and open jobs. However, investors need to observe the characters of crowdfund investment and the risks. Lastly, don’t forget to ensure that the administrator of the crowdfund has obtained a permit from OJK.

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