Companies and group of individuals’ ambitious targets to raise funds through Crowdfunding the Nigerian financial markets are being inhibited by the restrictive provisions in the Companies and Allied Matters Act, 1990 and Investment and Securities Act, 2007 the Securities and Exchange Commission (SEC) has disclosed.
Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture using easy accessibility of vast networks of people through social media and crowdfunding websites to bring investors and entrepreneurs together.
Crowdfunding is very popularly in use in the United States (US), Europe and Asia to raise capital for various financial and non-financial projects. There are more than 1000 Crowdfunding portals worldwide supporting a multi-billion dollar industry. For instance global Crowdfunding hit $16.2 billion in the US in 2014. And given the tremendous growth in online platforms that has led to the success of online shopping portals in Nigeria, many fund seeking corporates and groups have shown interest to source for funds through Crowdfunding in the country.
However, the Director General of SEC, Mounir Gwarzo said crowdfunding cannot be effective in Nigeria for now because of lack of rules and inhibitions in the provisions of CAMA and ISA.
Speaking in Lagos last week the SEC boss said while the commission is committed to deepening the nation’s capital market to meet the funding needs of corporates and grow the economy, the legal provisions are a big challenge.
“We are aware of the growing interests among Nigerians to use Crowdfunding to raise funds. However, that cannot materialise now given the legal challenges as a result of the provisions in CAMA and ISA. But we are looking for ways to go about it so that companies will enjoy the benefits of Crowdfunding in the country as well,” Gwarzo said.
According to him, SEC is looking at the Crowdfunding rules in US and Canada in order to ensure an enabling legal and regulatory framework that will support this massive global innovation.
It is believed that equity crowdfunding will prove to be an expedient way for many struggling SMEs to raise capital since they find it difficult to raise startup capital because they are considered as high risk to banks.
The theory behind crowdfunding is that if a large number of people, referred to as the “crowd”, each provide monetary contributions, then it is possible to raise substantial sums of money, without the need to go to traditional lending sources.
However, SEC regulates all securities offered for sale by public companies in Nigeria and currently there are no provisions relating to crowdfunding in the SEC rules. Besides, the provisions of CAMA, regulates the formation and operation of all types of companies and enterprises in Nigeria, will place restriction in dealing with transfer of shares, invitations to the public to subscribe for shares among others.