Name
Global FinTech Guide
Country _ Name
Saudi Arabia
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

With the focus on developing the Saudi financial sector, crowdfunding has expanded and received wider acceptance among individuals, especially if it relates to donations. One example is Ihsan Platform (also known as the National Platform for Charitable Work, and is supervised by the Saudi Data and Artificial Intelligence Authority (SDAIA), which is a governmental crowdfunding platform that is focused on the participation of both individuals and entities.  Each year, it promotes an initiative intended for people in need, and all collected money is paid out that same year in which it was collected.


Legal affairs

Obligations and requirements to provide crowdfunding, crowdinvesting and crowdlending platforms described above

Reward-based crowdfunding platforms do not need to be regulated by the financial regulators as long as they do not carry out any activities that are regulated by SAMA or CMA.

In contrast, however, debt-based crowdfunding is a regulated activity under the Financial Sector Development Program. An applicant for licensing a debt crowdfunding facility must submit an application for licensing to the Central Bank, including:

  • License application from the Saudi Central Bank (SAMA).
  • Memorandum of association of the debt crowdfunding facility and its organizational documents (Articles of Association, Bylaws, etc.).
  • List of the founding members or shareholders that includes the amount and percentage of each founder or shareholder’s share in the company debt crowdfunding facility.
  • Form of suitability requirements for the founding members or the shareholders of each founding member or contributor.
  • Profitability Requirements Form for Board Members.
  • Irrevocable bank guarantee (in case the applicant is a company under incorporation).
Subject to the provisions of the Saudi Companies Law, the minimum capital of a debt crowdfunding facility shall be SAR 5 million and the amount can be increased or decreased as per the Capital Market Authority.

The term of the license shall be five years, and the Saudi Central Bank may renew it at the request of the debt crowdfunding facility.

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 platforms may also need to comply with regulation from other ministries. For example, reward-based crowdfunding platforms that relate to donations should comply with regulations from the Ministry of Human Resources and Social Development. Any financial activities conducted by the reward-based crowdfunding platform such as the collection and distribution of funds will still be supervised by SAMA and the platforms will also need to comply with Anti-Money Laundering (AML) and Countering Financing of Terrorism (CFT) regulations.


Economic conditions

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

According to the Saudi Central Bank's (SAMA) 2022 annual report, the total value of debt crowdfunding loans experienced significant growth in 2022, reaching SAR 771 million. This upward trend is further emphasized by the notable increase in the number of financing transactions, which rose from 422 in 2021 to 1260 in 2022.

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

Crowdfunding in Saudi Arabia is still in its infancy, and we expect revision to existing regulations.

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