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Control Rules on Fintech Firms Impact of Indonesia's New Foreign

Banking CIO Outlook | Monday, October 18, 2021

The country’s new regulations empower local players while limiting the power exercised by foreign shareholders.

 

FREMONT, CA:  Indonesia has formed new rules and regulations around foreign ownerships and controls, making fundraising and negotiating shareholder agreements much more difficult. The new regulations significantly impact the financial industry of the country.

As part of Indonesia’s protectionist policies, the new rules empower and protect local companies to boost the domestic economy, cap foreign shareholders’ control in payment businesses to only 49%. These new rules ensure that local shareholders entirely control the payment companies. The rule also makes the appointment rights and veto rights of foreign shareholders void. 2 85% of a company could be owned by a foreigner, the voting right must remain below 50%. These rules are posing a severe problem for foreign shareholders who want to influence their startups’ decisions and fundraising potential. While the regulations are strict for foreign shareholders, this could also open new opportunities for local players.

Indonesia is one of the largest economies in Southeast Asia and has rapidly developed its startup ecosystem in the last two decades. The country's government primarily supports and encourages technology start-ups and has ruled out several policies that accelerate their growth. Despite the pandemic, Indonesia’s startup ecosystem has raised one of the highest amounts of venture capital in the first quarter of 2020. The country is also witnessing rapid development in the financial technology sector. With a 261.12 million population, the majority of those below 35, technology is the critical enabler for economic development in Indonesia. Supporting such growth in the nation are the fintech companies providing innovative financial solutions at every nook and corner of the nation. Indonesia’s fintech ecosystem is also resolving the challenges faced by small and medium businesses regarding loans. Home to 167 fintech companies that offer lending personal finances crypto and blockchain services, a different community of Indonesia is expected to grow in the coming years and become the center of advancements in the global fintech industry.

 

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