Saudi Arabia's Sama rolls out crowdfunding regulations to open new financing avenues

The Saudi Central Bank has set a minimum capital requirement of 5m riyals for entities seeking a licence for crowdfunding activities

The Oversight and Anti-Corruption Authority and Saudi Central Bank started the investigation after a tip-off Reuters
The Oversight and Anti-Corruption Authority and Saudi Central Bank started the investigation after a tip-off Reuters

Saudi Arabia's Central Bank set new rules governing crowdfunding-based activities as it looks to open up more avenues of funding for smaller businesses and broaden the pool of liquidity in the kingdom.

Sama, as the central bank is known, has set a minimum capital requirement of 5 million Saudi riyals ($1.33m) for entities looking for a licence for crowdfunding activities, the regulator said in a statement on its website.

The new framework is aimed at attracting “a new segment of investors and companies” and owners of “small and medium capital”, as well as "encouraging innovation in product financing", the regulator said.

“The issuance of these rules comes as part of Sama's efforts to support the opportunities for growth and economic development in the kingdom, in order to achieve the goals of the kingdom's Vision 2030 by supporting and organising modern financing activities,” according to a central bank statement.

Saudi Arabia, the Arab world’s biggest economy and Opec’s biggest crude exporter, is looking to radically overhaul its economy. Development of the non-oil sector, including the kingdom’s financial services sector, is a central plank of Riyadh’s Vision 2030 agenda, an overarching programme to cut its dependence on oil revenue.

Crowdfunding is 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, according to Statista research data. The concept, which originated in the US, is gaining traction in the GCC's six-member economic bloc.

The Central Bank of Bahrain and the Central Bank of the UAE have already rolled out their crowdfunding regulations.

Dubai-based fresh snack company Fruitful Day is among smaller businesses that have tapped crowdfunding in recent months. The firm raised Dh3m ($816,771) in two successive fundraising rounds in November, attracting investors from as far away as Switzerland and Singapore, as well as from Saudi Arabia and the UAE.

In September, Dubai SME, part of Dubai's Department of Economic Development, said it is partnering with peer-to-peer lending platform Beehive to allow individuals to invest in SMEs in the country through crowdfunding.

Published: January 12, 2021 01:09 PM


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