Bahrain issues crowdfunding regulations to open up new financing avenues

Move comes after comprehensive review of existing rules by the central bank

The Central Bank of Bahrain has set new rules governing crowdfunding-based activities as the country looks to open up more avenues of funding for smaller businesses and broaden the pool of liquidity.

The move follows a comprehensive review of existing regulations and contains rules regarding both equity and financing-based crowdfunding, a report by Bahrain News Agency said.

The new regulations include principles governing the conduct of operations by the platform, rules on platform offers and disclosures, avoiding conflicts of interest, as well as segregating client money from platform operators to ensure the safe operation of the activity.

“The evolving business models such as crowdfunding will potentially provide new alternative sources of funding for new businesses and start-ups and serve as a catalyst for the growth of such businesses,” said Shireen Al Sayed, director of the regulatory policy unit at the CBB.

“The new regulations are principles-based, simple, easily understood and contain the minimum safeguards to ensure the crowdfunding platforms do not pose excessive risk to the financial sector.”

Crowdfunding is a way of raising small amounts from a large number of investors through a digital platform. Small businesses or start-ups usually take this alternative approach of financing to start new ventures or secure growth capital to increase scale.

The global crowdfunding market is estimated to triple from $13.9 billion in 2019 to $39.8bn in 2026, Statista research data suggests. The concept, which originated in the US, is gaining traction in the GCC's six-member economic bloc.

In March, the UAE cabinet approved the use of crowdfunding in the public and private sectors to finance new projects, saying it was one of the best means of securing financing for innovative commercial ideas and would help young people and entrepreneurs.

Last year, Saudi Arabia's Central Bank also set new rules governing crowdfunding-based activity.

“Crowdfunding provides a viable alternative to tap into a new source of funding for start-ups and new companies,” said Yasmeen Al-Sharaf, director of FinTech and Innovation Unit at the Central Bank of Bahrain.

“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.”

Bahrain's economy continues to recover from the effects of the coronavirus pandemic and is projected to grow 3.3 per cent this year and 3 per cent in 2023, the International Monetary Fund estimates.

Last month, Moody's Investors Service revised the outlook on Bahrain to stable from negative as the country's economy benefits from high oil prices and the government continues its fiscal reforms.