After months of consultation, the Dubai Financial Services Authority (DFSA) has finally formalized a tailored regime for loan and investment crowdfunding platforms, opening another avenue for Shariah compliant services.
The regulation, the first of its kind in the GCC and covers Shariah compliant crowdfunding services, dictates that any provider of Islamic peer-to-peer financing solutions would be required to comply to relevant existing Islamic finance rules and secure an Islamic endorsement on their license. At the moment, only one provider is licensed by these rules: Beehive, which offers Shariah solutions.
“By creating a clear set [of] rules for operators, we hope to encourage the sustainable development of this industry and [it] is part of our contribution to the UAE government’s strategy to develop the SME sector,” shared Ian Johnston, CEO of DFSA.
It is hoped that the framework would unlock SME growth, a segment which accounts for about 85% of businesses in the UAE (2014) and contributes to nearly 60% of the GDP while employing 60-65% of the UAE workforce, according to the DFSA.
In Dubai alone, SMEs represent nearly 95% of all establishments and hire about 42% of the workforce, contributing 40% of the total value of Dubai’s economy. Despite being a significant economic force, SMEs struggle to access financing for expansion: figures from the Khalifa Fund show that 50-70% of loan applications by SMEs have been rejected by banks and SME loans only account for 4% of outstanding bank credit in the UAE, significantly below the MENA average of 9.3%. Crowdfunding, which is projected to extend over US$300 billion in loans and US$93 billion in equity-based financings by 2020, is seen as a crucial instrument to narrow the SME financing gap in the UAE. In fact, Beehive this month provided an online business with financing, guaranteed by the financial arm of Dubai SME (See IFN Fintech Report Pg 6).