Impact Investment in Indonesia

Jan 13, 2021 | by Yosy Christy Natalia

Impact investment in Indonesia

Impact investment in Indonesia has seen an upward graph, especially after 2013. According to the Global Impact Investing Network (GIIN), Indonesia’s impact investing market is the largest and most mature in Southeast Asia both by “capital deployed and several deals”. 

Impact investment ecosystem in Indonesia

Indonesia has a “vibrant ecosystem” that is conducive for impact investing, “with many impact-focused business support providers”, the GIIN states in its focus report on Indonesia. 

In this blog, we will throw light on the impact investment environment in Indonesia. It’s all about the advantages that the country enjoys, the bottlenecks, and the challenges ahead.

The GIIN report lists the key characteristics of the impact investing market in Indonesia. Between the years 2007 and 2017, the local investors preferred to make deals below $500,000 of impact investing. While global investors operated between $1 and 5 million. This was concerning private impact investors (PII), which strikes most of the deals in the financial services sector, agriculture.

As far as Development Finance Institutions (DFIs) are concerned, most DFI investment deals in Indonesia range between $10 and 50 million. 

As per the GIIN, “Over the past decade, Indonesia has seen more deals and impact capital deployed by the DFIs than any other country in the region”. The DFIs make the most investment into financial services, energy, and manufacturing sectors. 

While the DFI activity has seen a consistent trend in Indonesia’s impact investing market, the PIIs saw an upward trend after 2013. Indonesia’s steady average annual GDP growth rate and consistent improvement in ‘Ease of Doing Business’ and ‘Global Competitiveness Index’ rankings make it an investment-friendly market. It also enjoys a stable macroeconomic environment.

Indonesia is abundant in natural resources and is the largest economy in Southeast Asia in terms of its Gross Domestic Product (GDP) at purchasing power parity (PPP). It has a good track record in minimizing the early-stage funding gap and a pro-active approach towards gender-lens investing. Not to mention, Indonesia has the most gender lens investors of any country in Southeast Asia.

“Foreign Direct Investment (FDI) in Indonesia has gradually increased over the last decade. A trend that will likely continue given the government’s commitment to improving its business environment,” the GIIN report mentions.   

Lately, the environment sector has also received considerable attention from impact investors in the country. Emerging sectors in Indonesia include sustainable fisheries, workforce development, and education

Impact investment in Indonesia: Future prospects

Indonesia’s prospects concerning impact investing only seem brighter than before. However, there is a need to tackle the bottlenecks that stand in the way of the country’s burgeoning market. Regional inequalities in economic growth need to be addressed. Indonesia has high income and gender inequalities. Limited access to formal financial institutions is also a hurdle. Reliance on foreign capital, limited local presence of investors, little awareness of impact investors is among other challenges faced by the impact investing market in Indonesia. 

The GIIN says addressing these challenges is vital to “accelerate the advancement of the impact investing industry in the country”.

There is also a lack of legal & official support for social enterprises running in Indonesia, which adds to the confusion and lack of information. 

As a market, Indonesia is definitely at a very pregnant stage when it comes to impact investing. It also overcoming these challenges can set it up as a hub of impact investing in the region. 

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