Iran, home to the largest concentration of Shariah compliant financial assets globally, is laying the foundation to enable technology start-ups raise funds from the public through a local bourse.
Recognizing the swift rise of alternative financing in the Islamic Republic, the Securities and Exchange Organization (SEO) has signed a multilateral MOU with the Ministry of Communication and Information Technology and Ministry of Labor and Social Affairs to facilitate technology-based start-ups to crowdfund through the Iran Fara Bourse.
The exercise would be a collective effort between several authorities including the Ministry of Economic Affairs and Finance which will grant licenses for each individual project. SEO, which supervises the Fara Bourse, has not revealed the exact mechanism for the crowdfunding process but what is known is that borrowers can borrow up to IRR50 billion (US$1.34 million), which will be collected by authorized agencies from a pool of investors. Foreign and domestic investors can take part in the exercise.
“The SEO is not aiming to recommend any projects to investors, but we try to facilitate conditions for both investors and entrepreneurs,” explained SEO Chairman Shapour Mohammadi who added that all information and requirements for investment will be communicated through the Fara Bourse to investors who will participate in these projects as partners. The MOU does not include provisions of loans to start-ups.
Iran, which practices a fully-fledged Shariah compliant financial system, does not have a comprehensive regulatory framework for crowdfunding yet, although it is understood that in respect to the MOU, one is underway; the regulation will need to be approved by the SEO’s High Council, which will detail the role of each party involved in the crowdfunding exercise. The Central Bank of Iran in October 2017 began regulating certain areas of fintech, particularly payments.
The apex bank is taking a gradual approach to regulating fintech, starting with regtech and fintech in general, then blockchain and cryptocurrencies before tackling rules and policies defining the role of fintech companies as providers of funding and financial services.
The creation of a crowdfunding avenue may ameliorate the inefficient start-up funding ecosystem which has been less-than-favorable due to, among others, the crippling of the Iranian economy after years of international sanctions.