Name
Global FinTech Guide
Country _ Name
Nigeria
SectionTitle
Crowdfunding/crowdinvesting/crowdlending
Body
FinTechs belonging to this category operate crowdfunding, crowdinvesting and crowdlending platforms on which money is raised to invest in various projects, mainly start-up companies and real estate projects.

Crowdfunding is not a defined financial service, but generally used to describe donation-based crowdfunding (the investor donates the money to the project), reward-based crowdfunding (the investor receives an often symbolic consideration for his investment), equity-based crowdfunding (crowdinvesting: the investor participates in the profits of the financed project or acquires shares or debt instruments) or lending-based crowdfunding (crowdlending: the investor is reimbursed at the end of the project with or without interest).

Introduction

Attitude of the country towards crowdfunding, crowdinvesting and crowdlending platforms

The attitude of the country towards crowdfunding in Nigeria is fair, particularly because the laws in this space are still evolving. Crowdfunding has traditional roots in Nigeria through systems like Esusu (Igbo), Ajoo (Yoruba), and Adashi (Hausa), which involve groups contributing money to be distributed based on need or timing. In today's digital era, crowdfunding has manifested in the Nigerian FinTech space via online crowdfunding platforms like NaijaFund, Farmcrowdy, and QuickRaiz.

Before 2021, crowdfunding practices were barely regulated. Companies, private entities, and individuals raised money from online platforms without regulation or supervision. Members of the public in the past used to donate to the projects of micro, small and medium enterprises (MSMEs) and also startup companies altruistically with no intention of receiving anything in return. On January 21, 2021, the SEC published the approved Rules on Crowdfunding (the “Crowdfunding Rules”), This was a huge step towards establishing a comprehensive regulatory framework for crowdfunding in Nigeria. The Crowdfunding Rules, however, only apply to investment-based crowdfunding (i.e equity-based and lending-based).


Legal affairs

Obligations and requirements to provide crowdfunding, crowdinvesting and crowdlending platforms described above
Under Rule 5 of the Crowdfunding Rules, every crowdfunding platform used by companies in raising funds from members of the public through crowdfunding must be operated by an entity registered as a Crowdfunding Intermediary. A Crowdfunding Intermediary would be said to be facilitating, operating, providing, or maintaining a crowdfunding platform in Nigeria if the crowdfunding platform is: (a) operated, provided, or maintained in Nigeria; or (b) located outside Nigeria but targets investors in Nigeria; or (iii) the components parts of the portal when taken together are physically located in Nigeria even if any of its components parts, in isolation, is located outside Nigeria. Rule 6 of the Crowdfunding Rules further provides that, an application for registration of a Crowdfunding Intermediary must be submitted to the SEC accompanied, amongst others, with certified true copies of its certificate of incorporation and memorandum and articles of association. The aforementioned requirements infers that such Crowdfunding Intermediary must be a company duly registered to carry on, among others, crowdfunding business.

In order to obtain a registration by SEC, the Crowdfunding Intermediary must show that it will be able to: (a) operate an orderly, fair and transparent system in relation to the investment instruments that are offered through its electronic platform; (b) the board, chief executive, and any officer of the Crowdfunding Intermediary who is primarily responsible for the operations or financial management of the crowdfunding platform, are fit and proper persons; (c) manage any risk associated with its business and operation; (d) take appropriate action against a person in breach of any rules, policies, terms and other standards of the platform or portal including directing the person in breach to take any necessary remedial measure; (e) the Crowdfunding Intermediary has sufficient financial, human and other resources for the operation of the Crowdfunding Portal; and (f) the rules of the Crowdfunding Intermediary make satisfactory provisions for the protection of investors and public interest (i) to ensure proper functioning of the market, (ii) to promote fairness and transparency, (iii) to manage any conflict of interest that may arise, (iv) to promote fair treatment of all users, (v) to ensure proper regulation and supervision of its users, or any person utilizing or accessing its portal, including suspension and expulsion of such persons after consultation with the SEC, and (vi) to provide an avenue of appeal against the decision of the operator. (Rule 7 of the Crowdfunding Rules).

Similarly, the SEC may revoke the registration of a Crowdfunding Intermediary if such Crowdfunding Intermediary (a) fails to meet the above-stated requirements, (b) ceases to be in operation or maintain its crowdfunding platform for a consecutive period of six (6) months, or (c) fails to pay fees as prescribed by the SEC. (Rule 8 of the Crowdfunding Rules).

Where a Crowdfunding Intermediary intends to discontinue its business operations or wishes to change its ownership structure, it must obtain approval from SEC to do so. Such notification for approval to the SEC must be accompanied with a plan for the reasonable conclusion of any of its ongoing operations or process for SEC’s consideration. Without prejudice to the above, SEC may issue a directive or impose any term or condition for the purposes of ensuring the orderly cessation of the business or operations of the crowdfunding platform. (Rule 9 of the Crowdfunding Rules).

Rule 12 of the Crowdfunding Rules also imposes an obligation on the Crowdfunding intermediaries to carry out due diligences on prospective fundraisers intending to use their portal and ensure that the fundraising limits imposed by the rules on the fundraisers is complied with.

Crowdfunding Intermediaries are also required to safeguard the integrity of the information received on its platform and ensure confidentiality of information obtained from investors, maintain records of investors, fundraisers, all communications across its platform. The Crowdfunding intermediary must also maintain cyber-security measures and generally comply with the provisions of the extant data protection law in Nigeria. (Rule 14 and 18 of the Crowdfunding Rules).

Additional comments regarding the legal situation for crowdfunding, crowdinvesting and crowdlending platforms or what FinTech’s must be aware of in this business area

Crowdfunding Intermediaries under the Rules (Rule 37 of the Crowdfunding Rules) are prohibited from providing any financial assistance to investors for the purpose of investing in an offer hosted on its platform; or for which it has provided a service; or compensating any finder or introducer for providing the Crowdfunding Intermediary with information about potential investors. They also are not allowed to solicit investments or facilitate secondary trades between buyers and sellers for investment instruments issued on its platform. Crowdfunding Intermediaries are further prohibited from utilizing any website, social media portals, or third-party portals other than the registered website of the crowdfunding platform for the purpose of facilitating a crowdfunding offering.

Crowdfunding Intermediaries should note that the Crowdfunding Rules prohibit the following entities from raising funds through a crowdfunding portal, namely: (a) complex structures; (b) public listed companies and their subsidiaries; (c) companies with no specific business plan or a blind pool; (d) companies that propose to use the funds raised to provide loans or invest in other entities; and (e) such other entity as may be specified by the SEC.

Crowdfunding Intermediaries should also be aware that the SEC rules provide for penalties for failure to comply with any of the Crowdfunding Rules. According to Rule 42 of the Crowdfunding Rules, a Crowdfunding Intermediary that fails to comply with any of the Crowdfunding Rules is liable to a fine of not less than N100,000.00 ($66) and N5,000.00 ($4) for every day the violation continues. Such Crowdfunding Intermediary is also liable for any loss of investor funds arising due to its failure to comply with the Crowdfunding Rules. (Rule 42 of the Crowdfunding Rules).

Economic conditions

Market size for crowdfunding, crowdinvesting and crowdlending platforms and biggest companies in this business area

Nigeria's Crowdfunding market is gaining traction, as more FinTechs are offering innovative opportunities for capital raising beyond traditional financing channels. According to Statistica – Markets Insights, recently updated in October 2024, the total transaction value in the reward-based crowdfunding market in Nigeria is expected to reach US$39.37k by 2025.

Some of the notable local players include:

  • NaijaFund.com: a reward and donation-based crowdfunding
  • Farmcrowdy: an aggrotech crowdfunding platform for funding farm ventures

Additional comments regarding the economic situation for crowdfunding, crowdinvesting and crowdlending platforms or what FinTech’s must be aware of in this business area

While the crowdfunding market in Nigeria is growing, it remains relatively untapped compared to more regulated markets like the US and Europe. However, steps are being taken to regulate the crowdfunding market more holistically, which could unlock bigger growth potential for Nigerian crowdfunding platforms.
Notably, the SEC Crowdfunding Rules places limits on how much investors can inject into crowdfunding platforms, capping such investments within a period of 12 months. Specifically, the Crowdfunding Rules state that:

  • The maximum amount which may be raised by a Medium enterprise shall not exceed N100Million (approx. $65,367);
  • The maximum amount that may be raised by a Small enterprise shall not exceed N70Million (approx. $45,752);
  • The maximum amount that may be raised by a Microenterprise shall not exceed N50Million ($32,684)
These limitations, however, do not apply to commodity investment platforms.

It is also noteworthy that the Crowdfunding Rules further placed a limit on the amount of investment instruments that can be sold by companies to any investor within 12 months period. Retail investors are expected not to invest more than 10% of their net annual income in a calendar year, whereas Sophisticated, High Net Worth, and Qualified Institutional Investors are not subject to the limitation placed on retail investors.

Authors

NameOrganisationEmail
Ebimobowei JikenghanG Elias[email protected]06346
Eberechukwu Ezike [email protected]0 

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