Crowdfunding is the practice of funding a project or a venture by raising monetary contributions from various people. It is an alternative form of financing, providing small, medium and startup businesses with the chance to finance their ventures and projects.
Previously there were no regulations for crowdfunding in Dubai. The Dubai Financial Services Authority (DFSA) has recently introduced new rules regarding crowdfunding in Dubai International Financial Center (DIFC). The rules are set in place to help small, medium and startup businesses raise funds using crowdfunding. The new regime has been set in place to develop the SME segment in the UAE and to promote sustainable development. Most importantly, as it is a growing market, laws had to be set in place to ensure that there is a legal framework in place to ensure that there is investor protection.
There are several crowdfunding models that encompass various ways of doing business, all of them, however, can be classified into 4 main types of crowdfunding:
As of yet all of the legal based framework that has been established in order to regulate crowdfunding is regarding loan-based crowdfunding. Unlike other countries, the UAE has seen that a majority of crowdfunding occurring is that based upon loans. The DFSA has also proposed amendments to several crowdfunding modules such as:
Details for the above mentioned are available, addressing all of the legal framework involved in the said modules and how they are regulated. This information is specifically for firms wishing to establish a platform for loan-based crowdfunding.
In summary, the DFSA has established that the regime will ensure that a tailored financial service will be provided and designed for the operating platform. In addition, the platform operator must have appropriate systems and controls. Transparency between all parties involved in the crowdfunding (both lenders and borrowers) is needed, alongside adequate checks of all participants making use of the platform. Client funds must be appropriately safeguarded and segregated to ensure optimal operation. Rules relating to any facility enabling the transfer of rights or obligations under a loan agreement between lenders. This is merely the beginning of the establishment of the legal framework regulating the crowdfunding market in Dubai. Ensuring that all participants are protected and can operate with assurance. This ensures that the SME and crowdfunding market continues to grow and prosper in the region.
If you are interested to learn more, we encourage that you refer to the website of DFSA authority or consult a representative of DFSA.
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Prepared by Business Boutique | Published on Oct 3, 2018
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