Shortly after the introduction of a Regulatory Sandbox to facilitate fintech initiatives, the Central Bank of Bahrain has now released a series of regulations concerning both conventional and Shari’a compliant financing-based crowdfunding businesses.
For the first time in history, it will be possible for small and medium sized Bahraini enterprises to raise conventional or Shari’a compliant financing through crowdfunding. For the latter, there is an additional requirement for hiring a Shari’a advisor.
Mr. Khalid Hamad, Executive Director at the CBB:
We expect Bahraini entrepreneurs to benefit from the global crowdfunding trend, which provides a viable alternative to bank financing. In particular, the CBB is keen to see Bahrain dominate the Shari’a compliant financing-based crowdfunding market in the region. The demand for Shari’a compliant financing is already high and we expect to see it reflected in the crowdfunding market as well.
The most important points of the new legal framework include:
- The crowdfunding platform operators need to have a minimum capital of at least BD 50,000.
- Only Person to Business lending/financing is allowed.
- SMEs with paid up capital up to BD 250,000 can raise money through crowdfunding platforms.
- SMEs could be based in Bahrain or abroad. In case the SME is international, the platform owners should clearly mention the cross-border and jurisdictional risk financier have to take.
- The lenders are responsible for performing their creditworthiness assessment on borrowers/fundraisers.
- All the lenders’ fees, charges, and commissions need to be publicly disclosed.
- Platform operators need to be fully compliant with the CBB rules on Anti Money Laundering, Combating Financing of Terrorism (AML/CFT), consumer protection, etc.
- Only Expert and Accredited investors can provide financing/lending through the crowdfunding platforms. They are allowed to allocate as much as 10% of their net assets to a single fundraiser/borrower.
- Given the specifics and the high-risk nature of the retail sector, retail investors are not allowed to participate.
- Platform operators may provide financing to interested parties who use the platform subject to obtaining the required license from the CBB to provide credit and adequate disclosure.
- In case that the fundraiser is not able to raise at least 80% of its crowdfunding offer size, the attempt will be considered unsuccessful and the amounts received will be returned within a week.
- A borrower can raise up to BD 100,000 in a year. The financing tenor could not last more than five years.
The equity-based crowdfunding regulations will be issued later this month.