Financial regulator in Dubai puts in place framework for crowdfunding platforms

Dubai’s financial regulator said it has put in place a regulatory framework for loan and investment-based crowdfunding platforms, the first of its kind in the GCC.

The move by the Dubai Financial Services Authority (DFSA) comes amid increasing efforts by the UAE to boost the fortunes of small and medium-sized enterprises that find it difficult to raise funds.

“The introduction of the regulation comes as crowdfunding is becoming an increasingly important route for small and medium-sized enterprises to access financing,” the DFSA said.

“The regulations ensure clear governance for fintech businesses and provide appropriate protection for their customers. They also formalise the DFSA’s approach to regulating crowdfunding platforms which had operated through interim arrangements since 2016.”

Loans sourced through crowdfunding globally are expected to reach more than US$300 billion by 2020, while equity-based global crowdfunding is forecast to reach $93bn in the same time frame.

SMEs make up 95 per cent of establishments in Dubai, contributing 40 per cent to the value of the emirate’s economy and accounting 42 per cent of the workforce.

The Arab Monetary Fund said in May that there is a 300 per cent funding gap for small and medium-sized enterprises in the region that banks are not filling. The fund said that while SMEs make up 80 per cent of businesses in the region, only one in five has a loan or line of credit.

“By creating a clear set of rules for operators, we hope to encourage the sustainable development of this industry and is part of our contribution to the UAE government strategy to develop the SME sector,” said Ian Johnston, the chief executive at the DFSA.