Strictly for Registered SMSE’s and FundMe Platforms, New Crowdfunding Regulations Could Disrupt Public Fund-Raising in Nigeria

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Recently, we reported the intention of the Securities and Exchange Commission (SEC) to introduce crowdfunding regulation into the investment sector of the country.

Sequel to that announcement, the Commission has released regulations that will guide the operations of businesses and investors alike in the sector. However, the SEC has officially released its regulation of the crowdfunding sector.

Crowdfunding, which is the practice of raising funds to finance a project or business from the public through an online platform, can now only be undertaking by eligible businesses on authorized portals in the country.

Eligibility and criteria for businesses

According to the new crowdfunding regulation, Micro, Small and Medium Enterprises that want to crowdfund must have been operating for a minimum of two years with good track records. They must also be registered under the Companies and Allied Matters Act.

Furthermore, businesses and enterprises wishing to embark on crowdfunding must have acquired the services or platform of an approved crowdfunding portal or company before permission would be granted.

Funds raised can be in exchange for the issuance of shares, debentures, or any other investment means that the SEC introduces going forward.

Maximum raisable amount and securities offerable in 12 months

One of the concerns we shared in the earlier post about the SEC’s intention to regulate the crowdfunding space was on the investment cap. Well, the new crowdfunding regulation also prescribed the maximum amount of funding/investment that the different categories of businesses can raise within a 12 year period.

Medium enterprises are not expected to raise above N100 million in 12 months. Small businesses can raise a maximum of N70 million while micro-enterprises must not raise beyond N50 million, all within the period of 12 months.

These stipulations, however, won’t affect businesses described as ‘digital commodities investment platforms’ or any such business designated as such by the SEC.

There’s also a limit to the total amount of investment instruments each category of business could offer for sale to any single investor under the crowdfunding regulation. For retail investors or individuals who invest for and on behalf of themselves, they shall not invest more than 10% of their annual income.

For large corporations, high net-worth organisations, and institutional investors however, they can invest as much as they wish as long as it doesn’t exceed the stipulations for amount raisable by SMSE’s.

Time regulations for each crowdfunding offer

As per the document released by the SEC, when a business issues a project for crowdfunding, that particular offer should only be left open for 60 days. During the period, the threshold (least amount of funding that can be raised) is 50% of the original funding target.

However, if it happens that the funding period closes and the threshold was not realized, the entire offering has to be cancelled. The business that put out the offering can decide to re-offer, but only after 90 days must have passed after the withdrawal.

Eligibility of crowdfunding platforms

There are several crowdfunding companies in Nigeria like Naija Fund and Fundanenterprise. But the most popular in Nigeria remains GoFundMe even though it is an American platform. The new crowdfunding regulation has provisions for all.

New Crowdfunding Regulation Could Disrupt Public Fund-Raising in Nigeria
Naija Fund is one of the more popular crowdfunding platforms in Nigeria

First, any platform that wants to facilitate crowdfunding for the MSMEs must be registered and licensed to do so by the Commission before they can carry out such activities.

Crowdfunding platforms that will be recognised are those operating and maintained within Nigeria; those located outside Nigeria but actively targets Nigerians and Nigerian businesses; those whose component parts, when brought together, can be seen to be located in Nigeria.

Furthermore, crowdfunding platforms like GoFundMe located outside Nigeria will be considered as targeting Nigerians if they run promotions of the platform either directly or indirectly in Nigeria.

Protecting investors…

Crowdfunding is a tool businesses often employ to raise funds. However, these businesses, mostly small scale, are without a clear business plan and strategy for the funds raised. Part of the SEC’s crowdfunding regulation touches on the operational requirements for businesses and, due diligence for crowdfunding portals.

The portals are therefore required to be knowledgeable about the general structure, features and risks of securities or investment instruments that are presented on the platforms. They are also expected to conduct due diligence on issuers and their business plans in order to ensure that the issuers have genuine business ideas.

To further protect investors, the portals are required to verify the financial condition of businesses issuing offers on their platforms and share relevant information with investors on the portal.

To ensure fairness

In order to ensure that as much people as necessary have the opportunity to be a part of the fundraising, the SEC issued that officials of the portals would not lend or finance or arrange lending or finance for an investor to purchase investment instruments under a crowdfunding offer.

In the same vein, whoever is making an offer or whichever business is making an offer on a portal can not make the same offer on other crowdfunding platforms.

The following entities are prohibited from raising funds through a Crowdfunding Portal:

  • Complex structures;
  • Public listed companies and their subsidiaries;
  • Companies with no specific business plan or a blind pool;
  • Companies that propose to use the funds raised to provide loans or invest in other entities;
  • Such other entity as may be specified by the Commission.

An analysis of the regulations by the SEC further reinforces the need for the interest of all businesses, crowdfunding portals, as well as investors to be protected in the country to encourage funding activities and growth of MSMEs in the country.

It however remains to be seen whether individual projects like public funding for medical expenses, charitable causes and other non-business fundraisers will be affected by this new crowdfunding regulation,


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