SEC To Relax Crowdfunding Rules, To Ease Access To Capital For MSMEs

The Securities and Exchange Commission (SEC) has revealed plans to ease regulations on crowdfunding to improve small businesses’ ability to access much-needed capital.

This recent move, aimed at fostering greater financial inclusion for startups and smaller firms, comes as Nigeria grapples with a challenging economic environment marked by high interest rates.

Director- General (DG) of SEC, Dr. Emomotimi Agama, revealed the commission’s plans during a recent interview. He underlined the importance of crowdfunding as a fundraising tool that has evolved from its initial use to finance creative projects like films and music, to a vital source of investment capital for small businesses.

Crowdfunding, Dr. Agama explained, offers an accessible route for startups and micro, small, and medium-sized enterprises (MSMEs) to raise funds through public contributions, often facilitated by online platforms. He noted that while the existing regulations have laid the groundwork for crowdfunding, there is a need to revisit the rules to make the process more accessible, especially for smaller businesses struggling to meet stringent financial criteria.

“We are taking a fresh look at the regulations to ease some of the constraints, making it easier for smaller firms to raise funds,” Dr. Agama said. He hinted that one of the key areas under review is the limit on how much businesses can raise through crowdfunding, suggesting that higher ceilings could be granted on a case-by-case basis.

The current framework, established in 2021, allows MSMEs incorporated in Nigeria to raise capital via SEC-registered crowdfunding portals. Under the rules, medium enterprises can raise up to N100 million, small enterprises up to N70 million, and micro-enterprises up to N50 million in a 12-month period.

However, Dr. Agama acknowledged that these limits have been seen as a hindrance for businesses looking to scale and may no longer be adequate given the current economic conditions.

“We recognise that the ceiling on crowdfunding could be limiting. We are exploring ways to adjust these caps, especially as businesses face rising operational costs due to high interest rates,” Dr. Agama stated. He stated that firms could potentially be allowed to raise larger sums depending on their specific circumstances.

This regulatory shift comes at a time when businesses are contending with the Central Bank of Nigeria’s benchmark interest rate of 27.25 percent, a rate that has made traditional bank loans prohibitively expensive for many MSMEs. In making crowdfunding more accessible, the SEC aims to provide an alternative source of financing that could help smaller firms thrive despite the tough economic landscape.

Dr. Agama’s comments have sparked optimism among business owners and investors, with many viewing the proposed changes as a crucial step towards unlocking capital for Nigeria’s burgeoning SME sector. As the SEC prepares to implement these regulatory adjustments, the commission is expected to engage stakeholders across the crowdfunding ecosystem to ensure the revised rules are robust and effective in meeting the needs of businesses and investors alike.

In doing so, the SEC hopes to not only facilitate smoother access to capital but also foster innovation and growth within Nigeria’s entrepreneurial landscape.