Saudi SAMA Seeks Feedback on Updated Debt-Based Crowdfunding Regulations
Debt-based crowdfunding is the collection of funds from participants (investors) through a debt crowdfunding platform. It is mostly a way for businesses (like SMEs) to borrow money from many individuals to raise capital for their projects. Crowdfunding can take many forms, and debt-based crowdfunding is just one form; other forms include donations, rewards, security-based, and is thus an alternative way of raising money to finance a project.
Several risks are inherent in crowdfunding, necessitating caution. These risks include the potential for fraudulent activities and money laundering, concerns regarding the credibility of those seeking funds, and the high likelihood of project failure, with over 90% of startups meeting this fate. It is crucial for participants in crowdfunding efforts to be mindful of these factors to make informed decisions.
On May 22nd, The Saudi Central Bank (SAMA) is seeking public consultation on the updated rules for companies engaging in debt-based crowdfunding. Some changes include new rules on risk management and setting up policies for market risks, operational risks, credit risks, etc., for crowdfunding companies, and transparency rules for investors.
The consultation runs until June 20th, and the draft text can be found here.
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