New crowdfunding regulations to help SMEs and startups in Dubai
By Waheed Abbas
Published: Tue 1 Aug 2017, 6:20 PM
Last updated: Tue 1 Aug 2017, 11:17 PM
The Dubai Financial Services Authority (DFSA) has introduced new regulations that will help small and medium enterprises and start-ups to raise funds through crowdfunding.
The SME sector in the country is facing challenges to raise funds after some conventional banks in the country made huge provisions in the recent past as most of these were related to the small and medium companies.
Small and medium enterprises in the UAE saw their 50-70 per cent of loans applications rejected by the banks. In addition, UAE bank loans to SMEs make up only four per cent of the outstanding bank credit, much below the 9.3 per cent Mena average, Khalifa Fund data showed.
Ian Johnston, Chief Executive at the DFSA, described the new regulations as the Gulf region's first to formalise a tailored regime for loan and investment crowdfunding platforms, which represent an increasingly important source of financing for the SME sector. 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."
SMEs make nearly up 60 per cent of the UAE's GDP and employ around 60-65 per cent workforce. In Dubai alone, SMEs make up nearly 95 per cent of all companies, employing 42 per cent of the workforce and contributing around 40 per cent to Dubai's GDP.
A recent study by PwC said a total of 97 campaigns were successfully funded in the region in 2015 and 2016, 24 of which were female-led and 73 male-led. Data showed that though men led women in seed crowdfunding in the Middle East, however, women outperformed their male counterparts in achieving the financial goals. Seed crowdfunding generated a total financing of $ 3.25 million (with $527,300 going to female led campaigns) in the Middle East for 2015 and 2016, with female-led campaigns in the Middle East generating an estimated 5,320 backers, compared with 4,240 for those that were male-led, it added.
Globally, loan-based crowdfunding is forecast to cross $300 billion and global equity-based crowdfunding more than $93 billion by 2020. The US and Britain are among those countries which have already introduced crowdfunding regulations to support their small enterprises and start-ups. Crowdfunding is the practice of funding a project by raising money from a large number of people who each contribute a relatively small amount, typically via the Internet.