Crowdfunding as an Alternative Financial Instrument to Develop Infrastructure for Economic Sustainability on Alor Island

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Crowdfunding as an Alternative Financial Instrument to Develop Infrastructure for Economic Sustainability on Alor Island Desta Rifky Aldara 1,*, Raja Oloan Saut Gurning 2 1 Post Graduate Student,

1 Crowdfunding as an Alternative Financial Instrument to Develop Infrastructure for Economic Sustainability on Alor Island Desta Rifky Aldara 1,*, Raja Oloan Saut Gurning 2 1 Post Graduate Student, Marine Engineering Department, Faculty of Marine Technology, Institut Teknologi Sepuluh Nopember Surabaya, Indonesia 2 Marine Engineering Department, Faculty of Marine Technology, Institut Teknologi Sepuluh Nopember Surabaya, Indonesia Abstract. The economic development of small and outer islands in Indonesia often lags to other regions due to the remoteness of these islands, forcing the society to face unique challenges. Alor island is one of small and outer island located on Nusa Tenggara Timur. Alor island have potential in several sectors, the most prominent potentials are the fisheries and tourism sectors. Unfortunately, not all of the potentials of natural resource and tourism in small and outer islands is well managed. These conditions create a challenge for economic sustainability in small and outer islands in Indonesia that can involve the civilians, entrepreneurs, stakeholders, and the government. This paper propose crowdfunding as an alternative financial instrument to develop infrastructure and economic sustainability uses information and technology. Keywords: Alor Island, Blue economy, Crowdfunding, Economic sustainability, Infrastructure, Small island 1 Introduction Indonesia is an archipelago country with more than 17,000 islands and also have groups of small island. According to the government regulation, the small island has an area less than or equal to 2000 km 2. The economic development of small islands often lags to other regions due to the remoteness of these islands, forcing society to face unique challenges [1]. Small island groups have potential in several sectors, the most prominent potential are the fisheries and tourism sectors [2]. The development of international tourism in Indonesia began in the 1980's. The tourism industry in Indonesia requires resources such as cheap labour, sunshine, and exotic scenery, wildlife, good infrastructure, and transportation [3]. Small and outer islands in Indonesia as shown in table 1 have potential of natural resources and tourism that can be used as a basic capital in a sustainable economy [4]. Unfortunately, not all of the potentials of natural resource and tourism in small and outer islands is well managed. These conditions create a challenge for economic sustainability small and outer islands in Indonesia that can involve the civilians, entrepreneurs, stakeholders, and the government. Table 1. Number of Small and Outer Islands in Indonesia (Source: BAPPENAS 2017) No. Provincy Year Nb. of Small Island 1 Aceh Sumatera Utara Sumatera Barat Riau Bengkulu Lampung Kepulauan Riau Jawa Barat Jawa Tengah Jawa Timur Banten Bali Nusa Tenggara Barat Nusa Tenggara Timur Kalimantan Timur Sulawesi Utara Sulawesi Tengah Maluku Maluku Utara Papua Barat Papua TOTAL 111 Alor Island is one of the outermost small islands directly adjacent to Timor Leste in the South. The island has an area of about 2119 km 2 and is bordered by the Flores Sea and the Pacific Ocean in the North, and Pantar Sea in the West. The economic of Alor Island is dominated with harvesting and fisheries industry. However, Alor Island has a common problem that * Corresponding author: desta14@mhs.ne.its.ac.id

2 commonly experienced by the outermost small islands, which is the lack of development and economic growth compared to other regions. Based on data from the Badan Pusat Statistik (BPS) showing that the economy in Alor district decreased by around 4% from 2014 to The concept of blue economy emphasizes the sustainability of economic development and environmental conservation. The policy of National Ocean Development of Indonesia consisting of ocean culture, ocean governance, maritime security, ocean economic, and marine environment. These five aspects are a support system for the blue economy, especially on the small and outer islands in Indonesia. Digitalization and social innovation are new approaches method to develop sustainable of the economy and creating a new relationship between civilian, entrepreneur, and related institutions. One example of digitalization and social innovation is funding by crowdfunding methods that support local communities to develop new projects [5]. Crowdfunding generally uses internet and information technology as promotion tools to promote the idea of project and also to attract investors. Civic crowdfunding gave potential impact on citizen's engagement, and also influence on the success of develop of the projects. however, there is still no academic research related to the development of small island projects with crowdfunding systems. The method used in this study is reviews the literature which contains the research or report with the possibility of actions to implement to develop small and outer island in Indonesia. Therefore, the purpose of this paper is to increasing the knowledge about funding opportunities on small island project. 2 Literature Review 2.1 Potential of Small Island Development Although it has limitations onshore resources, small islands have many potential for maritime resources. But in the other hand, it must be considered also its natural sustainability [6]. Following are some opportunities that can be developed on small islands: 1. Fisheries and Aquaculture Indonesia is the 2nd largest aquaculture producer in the world, total production in 2014 reached million tonnes increased 7% YoY 2013 [7]. There are potential of fisheries in Indonesia, pelagic, demersal fish, shrimps, reef fish, lobster, and squid [8]. Most of the citizens on the small island are fishermen Their contribution to food security is well recognized as a large proportion of the catch is not exported but either traded locally or consumed by fishers and their families [9]. Various investment opportunities in fisheries and aquaculture, such as warehousing, fish processing, and fish refrigerating system, seawed cultivative, and so forth. 2. Ocean Renewable Energy Energy supply is necessary for socio-economic and human development in any country [10]. However, most of the small island in Indonesia has not received energy supply yet, especially electricity. Therefore, renewable energy is needed to meet the energy needs of small islands while keeping the natural sustainability. Renewable energy potential on small island such as wind energy, wave energy, ocean current energy, solar energy, and so forth. Figure 1. Potential of Ocean Renewable Energy in Indonesia 3. Transportation Communities of island chains are usually dependent upon supply of goods and services from the mainland. However, the problem that often arises on small islands is access to get there. Ship is the ideal transportation for access to small islands. Meanwhile, in the aviation industry has been found aircraft that can landing and take off in the sea so that it is possible to speed up the travel time to get there [11]. 4. Tourism The development of international tourism in Indonesia began in the 1980's [3]. Groups of small island usually have exotic scenery as an attraction. To attract tourists, infrastructure and adequate transportation are needed to facilitate travel there [12]. Although not yet as popular as Raja Ampat or neighbouring Komodo Island, the waters around the Alor Island offer equally fascinating spectacles. There are at least 50 dive spots stretching from Alor Island to Pantar Island, and several islets around them. Some of the best sites are found along the Pantar Strait. 2.2 Blue Economy The President of Indonesia through the RIO +20 Convention in Brazil campaigns blue economy, and the ocean is a main sustainable development goals [13]. Blue Economy as a complement to the green economy concept a discourse where the "green economy" concept espouse a conservation and development vision organized around new environmentally friendly technologies and a global policy network of private

3 and public actors. The term blue economy arises because of three factors. Firstly, sheer extent and significance of oceans for development: oceans cover 70% of the earth s surface. Second, most ocean space lies beyond national jurisdiction, where many resources are held in common and where UN-led governance is fragmented. Lastly, state and private interest in oceans conservation and development is currently high. [14], [15]. 2.3 Crowdfunding for Develompent Crowdfunding is a funding a project by raising small amounts of money from a large number of people. Generally, crowdfunding uses technology and information to promote projects that will be funded. Crowdfunding project can range greatly from donation to entrepreneurs seeking for billion Rupiah to fund their business [16]. Vismara (2018) classified 4 types of crowdfunding. Firstly, in reward-based crowdfunding projects, either individuals or companies looking for financial funding by giving some rewards (sometimes customized) product or services. Second, in donationbased crowdfunding, individuals or non-governmental organizations raise money for a cause, without a rewards delivery to donors, for example, campaigns for natural disaster victims, and others. Third, in lending-based crowdfunding, lenders receive fixed interest rates for their loans. Lastly, equity-based crowdfunding, is a form of financing in which entrepreneurs make an open call to sell a specific amount of equity in their company on the Internet [17]. With a great potential for entrepreneurial and socio-economic development, crowdfunding is an excellent example of an alternative financial instrument [18]. Crowdfunding incorporates the civic entrepreneurs, investor, and institution that link people, ideas, and money, and also contributes to the communities development. Several smart city development projects in Italy as shown in table 2 have been funded up to 1,463,8675. Table 2. Overview of Crowdfunding in Italy Case Civil Challenges City Total Investment Raised ( ) EcoLab To build a digital network to connect agriculture producers, urban farmers, urban gardeners, consumers, and citizens Milan 15,000 So Lunch To connect people who cook at home at lunchtime with people who work nearby and want to eat at home Milan 40,000 CN Smart To promote a combination of workspace and vocational training L Hub courses for young people at risk of social exclusion Milan 60,000 Attiviamoci To promote and develop educational enrichment programs that meet the needs of children and families at risk of social exclusion Saluzzo 12,378 Next Taranto To build a FabLab as a place for creative innovators Taranto 15,301 Re-build the City of Science To re-build the City of Science of Naples Naples 1,463,867 Source: Carè et al, 2018; Discussion The global blue economy is set to grow faster than the general economy, possibly doubling in size by 2030 [19]. Small and outer island in Indonesia have many potential of natural resources and tourism, unfortunately, not all of the potential is well managed. The Gross Domestic Bruto (GDP) of Alor Island can be seen on Table 3. By seing the GDP distribution on the Alor island, harvest, forestry, and fisheries are the largest contributor to Alor's GDP. It is needs to be supported by other sectors so that the principles of blue economy and economic sustainable can be met. Table 3. GDP Distribution of Alor Island GDP Distribution of Alor Island in percentage Sectors Category Harvest, Forestry, and Fisheries Mining Processing Industry Electrical and Gas Water and Waste Management Construction Retail and Automotive Transportation and Warehousing

Table 3. GDP Distribution of Alor Island (continous) Accomodation and Food Supply 0.45 0.44 0.45 0.44 0.44 0.44 0.45 Information and Communication 7.81 7.58 7.46 7.16 6.77 6.33 6.

4 Table 3. GDP Distribution of Alor Island (continous) Accomodation and Food Supply Information and Communication Monetary and Insurance Real Estate Service Company Governance and Administration Education Health and Social Activities Other Total GDP Alor island have great potential in the fisheries and tourism sectors. Some investment opportunities in Alor Island are in the fisheries, aquaculture, tourism, and farming sectors. This is supported by government policies related to the use of Alor island in the marine and fisheries, tourism, agriculture, and farming sectors [20]. Therefore, for a sustainable economy, infrastructure development is needed to support economic development on small islands, mainly in the fisheries and tourism sectors. Economic development on small islands can be done by developing infrastructure that supports life on small islands, such as building sustainable energy power plants, lavatory, ports, warehouse, and others. Second, improve transport connectivity to and from small island. Transportation used can be in the form of ships or even planes. Third, improved supply chain for better end-user experience. Lastly, improved flow of goods or products [21]. These four factors are interrelated to create the economy sustainable growth and poverty alleviation. Infrastructure development can bring new business ideas that are related, and absorb more labor which is can increase the economic. energy funding in an area with financial limitations. Currently, the company is exploring solar energy sector. As of today, they has raised more than USD 45 million from registered investors.the company has provided loans mainly in emerging or newly developed countries, such as Peru, Estonia, Georgia, Cameroon, etc. In Indonesia, Mr. BJ Habibie's R80 project raise more than 9 billion rupiah from crowdfunding platform kitabisa. Crowdfunding on small island by utilizing information and technology provides several benefit, firstly, transparency in the financial reports to the parties because it has an automatic reporting system. Second, ease to manage their funds because it integrates many subsystems from the different parties. lastly, more users to be part of partners because it utilized the use of information, technology, and social networks. 4 Conclusion Infrastructure development is needed to support economic development on small and outer islands for sustainable economy, mainly in fisheries and tourism sectors. Crowdfunding as alternative financial instruments to support infrastructure development utilizing technology, information, and social network that can be used to attract investors to invest their funds. Crowdfunding offers transparency on financial reports and ease to manage the funds because it has integrated system. Acknowledgement Figure 3. Improvements Cycle To support the blue economy, there are many ways that can be done to increase the economy for economic sustainability on small islands, by utilizing technology and information is one way that can be used to attract investors to invest their funds. Funding through crowdfunding is one of the alternative financial instruments to support infrastructure development. An example of crowdfunding is Japanese crowdfunding platform "Crowd Credit" which focuses on renewable The authors would like to be obliged to Department of Marine Engineering FTK-ITS and other parties for helping the authors to finish this paper. References [1] L. Briguglio, Small island developing states and their economic vulnerabilities, World Development, vol. 23, no. 9, pp , Sep [2] A. Putranto, Pengembangan Pariwisata Bahari Di Pulau Kecil Berbasis Masyarakat (Studi Kasus

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