Learn about the accredited entities and crowdfunding mechanisms in the UAE

The Council of Ministers approved the permission to practice crowdfunding activity for loans and investments and to have operators from the government and private sectors to finance investments and projects by collecting money from a large number of people through licensed digital platforms.

Crowdfunding takes place from individuals through digital platforms to support loans, investments, and commercial projects, as this new concept is applied on a small scale according to temporary regulations, and it needs legislative systems that preserve the rights of all parties involved in it, according to the “official portal of the UAE government.”

And Cabinet Resolution No. (36) of 2022 was issued regulating the activity of the operator of the crowdfunding platform – the Securities and Commodities Authority and the system of crowdfunding activities based on loans – the Central Bank.

The Central Bank of the United Arab Emirates, the Securities and Commodities Authority, the Financial Services Regulatory Authority in the Abu Dhabi Global Market, and the Dubai Financial Services Authority in the Dubai International Financial Center are responsible for regulating and licensing financial services and activities.

The Dubai Financial Services Authority launched a regulatory framework for loan crowdfunding platforms and investment crowdfunding platforms. This framework is the first of its kind in the GCC countries, and forms part of the framework set by the Dubai Authority to create an appropriate system for innovation and increase sources of capital to support the small and medium enterprises sector.

The new crowdfunding rules introduced by the DFSA provide a world-class regulatory framework that gives consumers confidence in companies regulated by the DFSA.

The regulatory framework includes the main aspects involved in crowdfunding, namely: clarification of the responsible parties and their responsibilities, determining what companies must disclose about their business, determining the role of the digital platform, operations and fees, how to manage conflicts of interest and investors, their knowledge and understanding of the risks involved, and laws that prevent the use of crowdfunding platforms for money laundering Or for the purposes of financing terrorist organizations, preserving the funds and assets of investors, determining the possibility of investors exiting their investments, and providing full clarification in the event that crowdfunding platforms fail to carry out their work.

The Dubai Financial Services Authority’s crowdfunding regulations stimulate growth in the financial technology (fintech) industry in the UAE and the region, targeting the specific requirements of crowdfunding platforms. Authority to regulate crowdfunding platforms which have been through temporary arrangements since 2016.

The introduction of this system comes at a time when crowdfunding has become an important means for small and medium-sized enterprises to obtain financing. Global crowdfunding is expected to exceed $300 billion.

3 parties involved in crowdfunding:

Companies that want to raise money
The crowdfunding platform itself
The group interested in saving money

There are several models of crowdfunding known worldwide, including:

• Crowdfunding for donation purposes, without expecting any financial income or profits

• Financing in exchange for a reward/gift obtained by the financier in the amount of his contribution share

• Crowdfunding for the purpose of investment so that the financier has a percentage of the ownership of the project or its profits in return for the funded share

• Solidarity lending or peer-to-peer lending, where the financier provides loans to borrowers and expects to repay them with interest or an agreed increase in the respective crowdfunding platform.

Dubai Next, Beehive, and Eureka come from digital examples of crowdfunding platforms approved in the country. Dubai Next is a platform affiliated with the Dubai government, and aims to provide community support to youth and creative ideas of different nationalities, by attracting capital. Small-scale community members to participate in financing commercial projects based on innovative ideas.