The Saudi Arabian Monetary Authority (SAMA) has launched draft regulations on debt-based crowdfunding in the Kingdom, now open for public feedback, as part of its efforts to embrace modern financing activities.
There are 24 fintech companies permitted by the SAMA to operate within its regulatory sandbox. Nine of these companies are debt-crowdfunding platforms, and six of them are fully Islamic, offering Shariah compliant financing solutions and structures: Lendo, Raqamyah Platform, Maalem Financing, Forus, Nayifat and Tameed.
Legally speaking, these crowdfunding platforms have licenses to operate, but there is a lack of official law, regulation or legal framework specifically for them to establish proper mechanisms.
The new draft rules focus on providing licenses to crowdfunding companies and platforms and organizing their activities under existing regulations that govern other finance companies in Saudi Arabia. The minimum capital for crowdfunding companies to operate in the Kingdom is set at SAR5 million (US$1.33 million), which they may raise or reduce later on according to market conditions.
The regulator is inviting the public to provide their feedback starting the 7th July 2020 for a period of 30 days, before the rules are finalized.
Through these regulations, the SAMA seeks to attract a new segment of investors, as well as companies with smaller capital, and also to ensure that activities within the subsector of crowdfunding adhere to the requirements of information security, corporate governance, risk and compliance management, internal audits and other existing regulations in the Kingdom.
The regulator also hopes to encourage innovative financing products, it said in a statement.
The Saudi Capital Market Authority (CMA) had launched its Financial Technology Laboratory initiative in 2018, within which it granted the first two trial fintech licenses in the Kingdom to crowdfunding companies Scopeer and Manafa Capital. The CMA had also been working on developing a crowdfunding framework, using existing regulations and practices from other countries as a model but customizing them to fit the Saudi market’s needs and patterns. Neighboring Bahrain, which has taken the lead in the GCC’s fintech scene, has already taken major steps toward establishing a thriving crowdfunding landscape, having launched its regulatory framework and regulatory sandbox focused on the sector in 2017, and then in 2019 publishing dedicated regulations on Shariah compliant financing-based crowdfunding platforms and businesses.