LEGAL PERSPECTIVE: Crowdfunding By Dr AbdelGadir Warsama, Legal Counsel

Dr AbdelGadir Warsama, Legal Counsel

Earlier, in most places, many people particularly friends, groups or family members, used to collect little money from each every month and keep this amount in the hands of one who each month give all amount to one of them and so forth. This very simple kind of fund raising “alsandouq” or box-saver, was of great help. Now the sophisticated name for this activity is called “Crowdfunding”. Crowdfunding is capital raising through “crowdfunding platforms” to issue shares by closed, private, family companies, start-ups, SMEs and even covering entities engaged in real estate development projects and real estate income properties…., etc. 

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In Bahrain, CBB, released regulations for conventional and Islamic banks to undertake crowdfunding. It is possible for SMEs in Bahrain and the region to raise financing through crowdfunding. Firms operating e-finance platforms must have a license for Crowdfunding Platform Operator.

CBB Regulations provide for the minimum capital requirement for operators, only Person to Business (P2B) financing is permitted, SMEs with certain capital can raise funds through crowdfunding, experts and accredited investors are allowed to provide finance through these platforms and lend up to 10% of their net assets to a single borrower and sign a self-declaration form. Retail investors are not permitted to participate as the risk is of high nature. Platform Operators must disclose fees, charges and commissions and may provide financing to platform users subject to CBB license. If, a borrower is unable to raise 80% of the crowdfunding, this will be considered unsuccessful and money should be refunded. A borrower can raise a maximum of BD 100,000 through crowdfunding in a year and the financing tenor should not exceed 5 years. 

Globally, there are many big e-crowdfunding platforms, used by interested parties all over. Crowdfunding offers easy accessibility of vast networks through social media and websites to bring investors and entrepreneurs together, with the potential to increase entrepreneurship by expanding the pool of investors beyond the traditional circle of owners, relatives, and venture capitalists. Crowdfunding process created opportunities for entrepreneurs to raise hundreds of thousands or millions of dollars from anyone having money to invest. Investors can select from hundreds of projects and invest as little as 10 dollars.

The main advantage of crowdfunding is to provide access to large group of investors. E-crowdfunding platforms give an incredible way for businesses and individuals to grow and receive funding. Equity-based crowdfunding is growing in popularity because it allows startups to raise money without giving up control to venture capital investors. In some cases, it offers investors opportunities to earn an equity position in the venture.

By all means, crowdfunding gives an excellent opportunity to pursue, maintain and develop businesses for the betterment of all potential interested parties. A lucrative opportunity you can avail successfully and benefit from.