Indonesia Launches World’s First State-Backed Cryptocurrency Bourse
On July 20, 2023, Indonesia officially launched the world’s first state-backed cryptocurrency bourse, supervised by the Commodities Futures Trading Supervisory Agency. Local company PT Kliring Berjangka Indonesia was appointed as the futures clearing house for the settlement of crypto assets while another local company, PT Tennet Depository Indonesia, was appointed as the crypto asset storage manager.
The new bourse will list licensed cryptocurrency companies, such as Binance, Ripple, Ethereum, Tether, and Bitcoin.
Through the bourse, the Indonesian government is aiming to strengthen the regulatory environment for the country’s booming cryptocurrency sector and develop a safe and fair crypto trading ecosystem. Although the government currently prohibits the use of cryptocurrencies as a payment medium, the government does allow investments in cryptocurrency. According to the Commodities Futures Trading Supervisory Agency, Indonesia has an estimated 17 million cryptocurrency users.
Increasing cryptocurrency transaction volume
Indonesia saw crypto trading reach US$56 billion in 2021, a significant increase from the US$4.6 billion recorded in 2020. This increase was attributed to Indonesian regulators permitting cryptocurrencies to be traded as commodities in 2019 as well as the investment boom during the height of the pandemic in 2021. The crypto volume traded in 2021 reached US$19 billion and US$4.42 billion during the first half of 2023. The dampening demand in crypto was influenced by rising interest rates in recent months.
New regulatory changes to Indonesia’s cryptocurrency sector
The Commodities Futures Trading Supervisory Agency issued Regulation 8/2022 in November 2022, under which businesses need to obtain a crypto exchange provider (CEP) license. The new requirements for a CEP enterprise are as follows:
- Have a minimum paid-up capital of 100 billion rupiah (US$6.6 million);
- Maintain equity of at least 50 billion (US$3.3 million);
- Possess an online trading platform that can facilitate the trading of crypto assets linked to futures clearing institutions and future exchanges;
- The company must have an organizational structure that includes the following divisions;
- Customer service;
- Accounting and finance; and
- Must have at least one employee who is a Certified Information Systems Security Professional;
- A CEP holder can only own up to 20 percent of another CEP’s shares;
- Foreign ownership is only allowed for one CEP or prospective CEP;
- The CEP must have at least three board of Directors, of which two-thirds must be Indonesian citizens;
- The CEP must have at least three boards of Commissioners, of which two-thirds must be Indonesian citizens; and
- The CEP must submit periodic reports, business plan reports, and business achievement reports to the Commodities Futures Trading Supervisory Agency.
Notably, the Commodities Futures Trading Supervisory Agency will not issue a license if the business does not establish a local entity in Indonesia.
Opportunities in Indonesia’s financial technology sector
Indonesia’s fintech industry is one of the most competitive and dynamic in Southeast Asia, having produced four unicorns and one decacorn so far.
The fintech industry is one of the most funded sectors in the country — along with e-commerce — and is dominated by peer-to-peer (P2P) lending (50 percent) and e-payment (23 percent) platforms. Despite having hundreds of fintech companies operating in Indonesia, foreign investors will find the industry has yet to fulfill its potential. One of the factors is that 60 percent of the country’s workforce is in the informal sector, and many micro, small, and medium-sized enterprises (MSMEs) have little access to financing from banks, as they too are mostly operating in the informal sector.
According to the e-Conomy South East Asia Report of 2022, Indonesia accounts for 40 percent of the total US$77 billion in digital transactions in Southeast Asia.
Many local MSMEs have business models that are not compatible with the characteristics of the banking sector’s financial products. That includes aspects such as payment terms for loan schemes, forms of collateral, and credit quality, among others.
Foreign fintech firms can plug this gap through new financing models that have the potential to serve Indonesia’s 47 million underbanked and 92 million unbanked adults. As of 2020, P2P lending reached US$7.7 billion from over 102 fintech companies officially listed by the Financial Services Authority (OJK). This covered over 26 million borrowers throughout the country.
Electronic money transactions rose by 173 percent in 2020 and have become indispensable to Indonesian consumers. The country is predicted to be the next battleground for digital payment apps, with Indonesia possessing many of the key characteristics critical for adopting digital payment systems.
Some 196 million people in Indonesia have access to the internet and the smartphone penetration rate is 60 percent; above the ASEAN region’s 51 percent. Moreover, the middle class now comprises 20 percent of the population, a key segment in the growth of the digital economy.
For foreign investors in the e-wallet industry, it is essential that they deliver a customer-centric experience to allow customers to pay with the local payment method of their choice, ranging from mobile banking to payments via convenience stores. This is because while Indonesia has a high smartphone penetration rate, a sizeable portion of its population is unbanked.
ASEAN Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and maintains offices throughout ASEAN, including in Singapore, Hanoi, Ho Chi Minh City, and Da Nang in Vietnam, in addition to Jakarta, in Indonesia. We also have partner firms in Malaysia, the Philippines, and Thailand as well as our practices in China and India. Please contact us at email@example.com or visit our website at www.dezshira.com.