A statement from the central bank says since 2017 for the first time Central Bank of Bahrain (CBB) has issued new rules that cover principles applicable to operators of crowdfunding-based activities platforms to ensure their products are suitable for clients following a comprehensive review of the existing regulations. This will help the country looks to open more avenues of funding for smaller businesses and broaden the pool of liquidity.

Under the Crowdfunding Platform Operators Module (Module CFP), these new regulations are being covered which contain rules regarding equity-based crowdfunding and financing-based crowdfunding. This Module CFP can be found under CBB Rulebook - Volume 5: Type 7 – Ancillary Service Providers.

The new regulation is simple, easily understood, and includes principles governing the conduct of operations by the platform, rules on platform offers and disclosures made by a crowdfunding platform, avoiding conflicts of interest, and due diligence of borrowers/issuers through Know Your Customer (KYC). It contains the minimum safeguards to ensure the crowdfunding platforms do not pose an excessive risk to the financial sector. Further, the rule includes the principle of operating the segregation of client money from platform operators and other measures to ensure the safe operation of the activity. Additionally, to be sure about the suitability of the products that are being offered to retail clients the platform operators are being compelled by the new regulations.

Shireen Al Sayed, director of the regulatory policy unit at the CBB said “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,”. He further added, The CBB on a regular basis, reviews all regulations and directives related to the provision of financial services in the Kingdom of Bahrain to update and improve them with developments in the financial sector.

As per Yasmeen Al-Sharaf, Director of FinTech & Innovation Unit, finTech solutions have the potential to enhance capital flows to the economy commensurate with the growth and expansion plans of entrepreneurs using this new source of funding. This helps to develop the businesses of these start-ups. CBB will further explore and develop new financial tools for emerging business models to keep pace with the needs of the local market.

As per Statista research data in 2019 global crowdfunding market was $13.9 billion which is estimated to become $39.8bn in 2026.

About Crowdfunding :

The concept originated in the US. Crowdfunding is an alternative innovative way of raising small amounts of funds from many investors through a digital platform. Small and medium-sized businesses, seed capital, or start-ups usually take this alternative approach of funding to start new ventures or secure growth capital to increase scale.

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Indrani bose

CBW - External Analyst

INDIA