Crowdfunding platforms in the Sultanate will be barred from raising funds for individuals under draft legislation proposed by the Capital Market Authority (CMA). Beneficiaries can only be commercial organisations and enterprises, according to the regulator.
The Authority describes crowdfunding as a “method enabling those who seek funding to obtain amounts from donors or investors for the purpose of supporting their projects via the platform for donation or in consideration of reward or equity or investment note”
Globally, crowdfunding is projected to burgeon into a $200 billion market by 2025, underscoring the enormous potential of this sector to tap funds outside of conventional banking, financial and stock market channels.
Legal experts, as well as market specialists, have about three weeks to provide their feedback to the CMA on its draft regulation on Crowdfunding Platform Activity, published here on Monday.
Once legalised, crowdfunding can only be practiced by those with a valid license from the CMA. Licensed operators can offer crowdfunding services via any of the following four prescribed channels: (i) Donation Crowdfunding (raising funds without expectation of any return), (ii) Reward Crowdfunding (funding in return for products in the early version of a product or special version or service on commencement of operation or production, (iii) Equity Crowdfunding (providing funding in return of getting shares in the capital; such shares may be convertible or tradable), and (iv) Peer to Peer Crowdfunding (Providing funding in consideration of issuing conventional investment notes or Islamic investment notes including invoice financing which are convertible or tradable; such funding instruments may be convertible to equity).
Article 4 of the proposed legislation states: “The crowdfunding platform shall grant funding for commercial companies and enterprises, not to individuals.” Also prohibited from raising funds through crowdfunding platforms are a number of entities, including public joint stock companies, investment funds, companies and enterprises with no specific business plans, and not-for-profit societies or organisations.
Applicants for crowdfunding support that are less than a year old since they were constituted can seek funding of RO 100,000 or less, provided they submit their latest audited financial statements when seeking approval. Those that are more than one year of age can seek more than RO 100,000 of funding.
Applicants for crowdfunding are required to submit all relevant information to the platform operator, including details about the key characteristics of the business and company, purpose of the fundraising, and targeted amount.
The draft law also proposes a strict set of criteria for applicants seeking licenses to operate a crowdfunding platform. Applicants must demonstrate that they have the relevant experience and track record in managing a crowdfunding platform. Those found charged or convicted of civil or criminal action related to the capital market, or in any fraudulent or dubious activity, are barred from obtaining a license.