Sign in
The Saudi Central Bank (Sama) has issued amendments to regulations governing debt crowdfunding, according to a press release. The final set of amendments include feedback that Sama received from the general public and from experts after publishing a list of draft proposals earlier this year.
Uhh Enterprise… what is debt crowdfunding again? Debt crowdfunding, also known as peer-to-peer lending, allows firms to tap a large pool of angel investors via online platforms. The approach allows startups and smaller companies to raise capital without having to go through banks and traditional lenders that typically have more stringent requirements for issuing loans.
Some requirements didn’t change: Debt crowdfunding companies seeking licenses from Sama will still need to have a minimum capital of SAR 5 mn, the amendments showed. Sama will have a say in amending the capital requirement depending on market conditions or the firm’s business model or its activities.
But with an added caveat: Debt crowdfunding companies must now obtain a written non-objection from Sama before disposing of shares held by major shareholders or ones held by indirect owners if the change affects 5% or more of total shares and voting rights.
More protection for investors: Debt crowdfunding companies must disclose pertinent information to prospective investors on their websites, including the default rates.
Some of the proposed amendments to licensing did not go through: The proposed amendments published earlier in the year had scrapped a rule that licenses would fall through if a company fails to begin operations within six months of obtaining its license, or if a company suspends operations for three consecutive months or six months in total without Sama approval, or if a license is not renewed. The latest changes see these rules retained and companies must submit a written renewal request to Sama at least three months before their license expires.
Other amendments made the cut: “Large commercial enterprises” and licensed real estate projects looking to tap crowdlending are exempted from a funding cap of SAR 7.5 mn that Sama had set for beneficiaries. Debt crowdfunding companies can also exceed the cap when providing funding for other categories of beneficiaries if they receive a written no-objection from Sama.
Debt crowdfunding companies can now contribute funds to campaigns, provided that their contribution does not exceed 25% of the full amount requested by a beneficiary. Total financing via a platform is capped at 40x the company’s capital reserves unless Sama gives written consent. Moreover, individual investors are capped at a maximum contribution of SAR 250k, with high net value and high income eligible participants exempt from this rule.
DIG DEEPER- More details on the updated regs can be found here (pdf).
