Bahrain issues new crowdfunding rules to widen liquidity pool

The Central Bank of Bahrain has set new rules governing crowdfunding-based activities as the country looks to open up funding avenues for smaller businesses while broadening the pool of liquidity.

The move, which comes after a comprehensive review of existing regulations, affects both equity and finance-based crowdfunding. The regulations govern platform operations, how offers and disclosures are made, the segregation of client money and measures to avoid conflict of interest, a report by Bahrain News Agency 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,” said Shireen Al Sayed, director of the CBB’s regulatory policy unit.

“The new regulations are principles-based, simple, easily understood and contain the minimum safeguards to ensure the crowdfunding platforms do not pose excessive risk to the financial sector.”

Crowdfunding is a way of raising small amounts from a large number of investors through a digital platform. Small businesses or start-ups usually take this alternative approach of financing to start new ventures or secure growth capital.

The global crowdfunding market is expected to triple to $39.8 billion in 2026, from $13.9bn in 2019, Statista research data suggests. The concept, which originated in the US, is becoming popular in the GCC.

In March, the UAE Cabinet approved the use of crowdfunding in the public and private sectors to finance new projects, saying it was one of the best means of securing financing for innovative commercial ideas in a way that would help young people and entrepreneurs.

Last year, Saudi Arabia’s Central Bank also set rules governing crowdfunding activities.

“Crowdfunding provides a viable alternative to tap into a new source of funding for start-ups and new companies,” said Yasmeen Al-Sharaf, director of the CBB’s FinTech and innovation unit.

“FinTech solutions have the potential to enhance capital flows to the economy, commensurate with the growth and expansion plans of entrepreneurs, through this new source of funding, thereby, helping to develop the businesses of these start-ups.”

Bahrain’s economy continues to recover from the coronavirus-induced slowdown and is projected to grow by 3.3 per cent this year and by 3 per cent in 2023, the International Monetary Fund said.