Financing the creativity in Indonesia
Partner, Ginting & Reksodiputro in association with Allen & Overy
Counsel, Ginting & Reksodiputro in association with Allen & Overy
Lewi Aga Basoeki
Senior Associate, Ginting & Reksodiputro in association with Allen & Overy
22 July 2022
As part of the support given by the Government of Indonesia (the Government) for creative economy actors as mandated under Law No. 24 of 2019 on Creative Economy, the Government has issued Government Regulation No. 24 of 2022 on Creative Economy, which will come into force in 2023.
Under this government regulation, the Government provides incentives for creative economy actors (eg musician, artists, designers and production houses) and introduces the creative economy financing. The creative economy financing allows creative economy actors to obtain financing from banks and financial institutions based on intellectual property-based financing schemes.
The financing schemes allow creative economy actors to encumber their intellectual property1 to banks and financial institutions for the purpose of obtaining financing from those institutions. The encumbrance is allowed as long as (a) the intellectual property has been registered with the Ministry of Law and Human Rights (eg copyrights, trademarks, patents and trade secrets) under the framework of intellectual property laws and regulations, and (b) the intellectual property has been properly managed and/or the rights
over such intellectual property have been transferred to other parties (eg royalty). The government regulations affirm the position that banks and financial institutions can take security over the intellectual property (in the form of fiducia security), contracts entered by creative economy actors (eg licence agreements) and/or collection rights (eg royalties).
Access to finance
Although Indonesian law has previously allowed owners of intellectual property rights to encumber their rights in the form of fiducial security (jaminan fidusia), this government regulation is intended specifically to increase creative economy actors’ access to financing. In order to obtain creative economy financing from banks and financial institutions, creative economy actors must submit a proposal to such banks and financial institutions, have an intellectual property agreement (eg licence agreement or royalty agreement), and have a registration letter or intellectual property certificate with the Ministry of Law and Human Rights (ie the Directorate General of Intellectual Property).
Banks and financial institutions are required to conduct verification over the business and valuation over the intellectual property. The valuation over the intellectual property shall be undertaken by a public appraiser that is
- registered with the Ministry of Finance and the Ministry of Tourism and Creative Economy, and (b) certified as a public appraiser that can conduct a valuation over the intellectual property.
Further, creative economy actors that obtain financing from banks and financial institutions need to register the loan to the Ministry of Tourism and Creative Economy.2 It is also interesting that the government regulation introduces the possibility that creative economy actors can also obtain guarantee facilities (fasilitas penjaminan) from credit guarantee companies (perusahaan penjaminan) for the financing.
Other than obtaining financing from banks and financial institutions, the government regulation also allows creative economy actors to enter into an alternative financing scheme in the form of peer-to-peer lending and securities offering
in the form of crowdfunding (urun dana). This alternative financing scheme follows the capital market laws and regulations and is subject to prior approval by the Financial Services Authority.
The government regulation further stipulates that there are two types of incentives, which are fiscal incentives and non-fiscal incentives, to be given to creative economy actors. The fiscal incentives shall be provided by the central government (tax, customs and tariff facilities) and regional government (local tax and retribution incentives). Meanwhile, for the non-fiscal incentives, the government regulation stipulates several types of incentives, such as easing the processes of business licensing and registration application for intellectual property.
All in one go
While the government regulation paves the way for creative economy actors’ access to finance from banks and financial institutions, it will be interesting to see the appetite of said banks and financial institutions for this specific type of financing and the financing cost for any one art project.
This scheme in particular inspires questions as to how the economic valuation of intellectual property works and how banks and financial institutions value that intellectual
property as security, similarly to how they have been doing for other assets.
In addition, it remains to be seen how this government regulation will fit into the rise of digital art and technology ie NFTs, which are currently the most popular way for young Indonesian artists to promote their art publicly.
Nevertheless, this government regulation introduces various opportunities not just for creative economy actors and banks and financial institutions but also for public investors to participate in the growth of the creative economy by allowing public crowdfunding and peer-to-peer lending for creative economy activities.
1 The government regulation broadly defines intellectual property and it includes any types of works in technology, science, art, and literature.
2 However, the mechanism is yet to be regulated under the government regulation and, presumably, this will be further regulated under the implementing regulation issued by the Ministry of Tourism and Creative Economy.