The Securities and Exchange Commission (SEC) has disclosed that the current regulations governing the raising of funds in financial markets may be restricting growth of SMEs in the country. Citing the example of the Companies and Allied Matters Act, 1990 and the Investment and Securities Act, 2007, the Director-General of SEC, Mounir Gwarzo stated that SMEs and other corporate entities could not source for funds through crowdfunding as is currently the trend in other continents.
‘We are aware of the growing interests among Nigerians to use crowdfunding as a means of raising funds. However, that cannot materialize now given the legal challenges as a result of the provisions of CAMA and ISA.’ ThisDay quotes Gwarzo as saying
Crowdfunding is a source of alternative finance concept where a large number of people, called the crowd are solicited upon to contribute towards funding of a corporate entity with the prospect of getting something in return. The crowdfunding model has 3 main parties, the project initiator who comes up with the idea to be funded, the individuals or groups who support the idea, and a moderating organization or the platform that brings the parties together to launch the idea.
The concept is very common in developed nations with over 1000 crowdfunding websites existing, essentially making it a multi-billion-dollar industry. In 2015, the USA alone was estimated as generating $34 billion through crowdfunding.
The appeal of a form of crowdfunding, equity crowdfunding, to Nigerian businesses is high considering that crowdfunding represents a way of raising cash for business outside the formal lending sources, who usually consider SMEs as high risk or whose interest rates are usually too high for entrepreneurs. In addition, the recent growth of online platforms suggests that several individuals and businesses in the country will be interested in using this medium.
The current rules regulating the sale and/or exchange of securities b public companies contain no rules allowing for, or regulating the practice of crowdfunding. CAMA which regulates the formation and operation of companies and enterprises in Nigeria contains provisions that restrict the transfer of shares and invitations to the public to subscribe for shares.
Gwarzo however, calmed nerves as he said the Commission is currently looking for ways to ensure that SMEs and other businesses enjoy the provision of crowdfunding. ThisDay reports that the DG confirmed that the SEC was studying the rules governing crowdfunding in nations where the concept has worked with the aim of developing a conducive and safe framework and environment for the practice in Nigeria.