The central bank of Bahrain (CBB) has released new regulations to govern crowdfunding platforms. The new rules are covered under Crowdfunding Platform Operators Module (Module CFP). They were released to replace the existing ones created in 2017 and meet current needs for small businesses to raise funds and funders to be safer.
The new regulations affect equity-based and financing-based crowdfunding platforms. Some of the laws include principles that govern the rules on crowdfunding platforms and disclosures, the conduct of operations by crowdfunding platforms, due diligence of issuers and borrowers through KYC (Know Your Customer), and how to avoid conflict of interest. It also touches on the segregation of money from clients from the crowdfunding platform operators and the requirement of operators to ensure products offered on the platform are suitable for retail clients.
Crowdfunding involves raising money through digital platforms in small amounts from a large group of investors. It has become one of the top ways for startups to raise funds for their products and operations. The crowdfunding industry is worth about $13.5 billion and is expected to hit $28.2 billion by 2028.
On the new regulations, the Director of FinTech & Innovation Unit, Ms. Yasmeen Al-Sharaf, said,
“Crowdfunding provides a viable alternative to tap into a new source of funding for start-ups and new companies. FinTech solutions have the potential to enhance capital flows to the economy commensurate with the growth and expansion plans of entrepreneurs through this new source of funding, thereby, helping to develop the businesses of these start-ups. The CBB will continue to explore and develop new financial tools for emerging business models to keep pace with the needs of the local market, as well as to support and encourage efforts to create new services that match the evolving trends in the field of financial technology.”
These latest directives are expected to help startups and entrepreneurs raise funds to grow their businesses and boost the country’s economy as it recovers from the effects of Covid-19. Moody’s Investors Service recently revised Bahrain’s outlook from negative to stable as it starts to benefit from oil prices and fiscal reforms from the government.