by Sanya Ademiluyi
Nigeria’s Securities and Exchange Commission, SEC has announced new rules to guide and regulate the new but promising Crowdfunding investment activity in the country. For several months now, Crowdfunding investment activity appear to be growing in the country.
Solicitations for investors to crowdfund animal husbandry, cashew farming and fish farming are becoming commonplace in the mass media,especially online media. Usually, individual investors are requested to put in specific amounts of money for which they are promised various percentages of return on their investment in a specified time frame. One such ‘crowdfunding’ company asks willing investors to invest N40,000 in a pig farm with a promise of a 30 per cent return after three months.
But SEC worries that these new Crowdfunding schemes are unregulated and investors may end up losing their money to unscrupulous promoters of such schemes. It would appear that there are no rules to these offers or that only promoters of such ‘crowdfunding’ schemes know what the terms are. SEC few weeks ago issued a set of rules and regulations to guide Crowdfunding business activities in the country. SEC is more concerned about the investment type crowdfunding also known as equity crowdfunding.
The SEC Crowdfunding rules and regulations appear heavy on crowdfunding platforms whose business is to serve as fundraising platforms and intermediaries for enterprises/issuers seeking funds from investors. The rules spells out the type of ‘securities’ that can be offered by issuers to investors. These include -Ordinary shares, plain vanilla bonds/debentures and simple investment contracts.
,Seni Aka-Bashorun a lawyer with Agbakoba Legal who recently reviewed the SEC rules for crowdfunding, notes that,“the rules also hint at a departure from the requirement of registration of Securities under the provisions of Section 54 of the Investment and Securities Act, as it stipulates that an issuer may offer or sell securities or other investment instruments, without the need for prior registration pursuant to the Act, provided the issuer is an entity incorporated in Nigeria and has been accredited/approved by the Crowdfunding Portal to utilize its platform.”
Furthermore, it states that, “the issuer will be exempted from registering its securities or other investment instruments, if the aggregate amount of shares and investment instruments offered and sold by the issuer within
a twelve (12)-month period, complies with the following thresholds :The maximum amount that a Medium Enterprise may raise will not exceed N100Million; the maximum amount that a Small Enterprise may raise will not exceed N70Million and the maximum amount that a Micro Enterprise may raise will not exceed N50 Million.”
As Aka-Bashorun notes however, the above limits do not apply to Digital Commodities Investment Platform which are companies who leverage on an online electronic platform to offer agricultural produce, livestock and its
derivative products and all other goods and articles to investors.
It is noteworthy to state that the Commission in calculating the maximum amount of shares or investment instruments offered and sold by an issuer, within the thresholds and time limit, will take into account entities
controlled by or under common control with the issuer and any predecessors of the issuer,” he said.
According to the SEC rules, a crowdfunding portal can only be registered and operated by a Crowdfunding intermediary and the only entities that can be licensed as a Crowdfunding Intermediary are Exchanges, Dealer,
Broker, Broker/Dealer or Alternative Trading Facility as prescribed under the Act and the SEC Rules and Regulations.
Aka-Bashorun thinks that such rules may shut out Fintech companies which are the ones in the forefront of crowdfunding activity in the country currently.
The rules also prescribe the minimum paid up capital of N100 million for any entity interested in being Crowdfunding Intermediaries, as well as a Restricted Dealer.
SEC also asks international digital crowdfunding platforms targeting their marketing at Nigerians to have a local presence. Aka-Bashorun does not think this rule is enforceable.
According to the rules, a Digital Commodities Investment Platform,DCIP is a platform that connects investors to specific agricultural or commodities projects, for the purpose of sponsoring such projects in exchange for a
return.The provisions of Rules 43 (a) of the Proposed Rules, reveals that such agri-tech companies shall be permitted to provide crowdfunding portal services.
But then, according to Aka-Bashorun, Rules 43 (d) contradicts this provision, namely; DCIP shall only host commodities investment projects on crowdfunding platforms other than a platform which it controls whether directly or indirectly. “The Commission, with this contradiction, is seen to be approbating and reprobating because, if it says they are permitted to render crowdfunding portal services, why then is it saying they can only host their projects on other crowdfunding platforms that they do not control, in another breath? This contradiction needs to be resolved by the Commission” ,he says.
In 2017, 217 million pounds sterling was invested in firms via UK crowdfunding platforms such as Crowdcubes, Seedrs and Sydicateroom.in 2015 crowdfunding schemes worldwide raised a record $34 billion, according to Wikipedia. Surprisingly an estimated only5 per cent went to equity crowdfunding.
A Nigerian crowdfunding site,NaijaFund.wixsite.com describes itself as a “donation-based crowdfunding platform that empowers people to harness the power of the crowd to raise funds for personal causes.” It has causes on its sites such as “Help Adeyemi Launch his Pilot Career.” This may not be the kind of crowdfunding scheme SEC is concerned about.
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