India to allow crowdfunding

Tuesday, June 24, 2014

India has become the first Asian country, outside Australasia and Japan, to propose a regulatory framework for crowdfunding, the retail-targeted funding platform for start-up companies and individual projects.

Last week, market regulatorSecurities and Exchange Board of India announced the draft regulations and pointed out that web-based crowdfunding would help start-ups and small- and medium-sized enterprises to raise early-stage capital and reduce funding costs.

The regulator highlighted the fact that the IPO market had stalled in recent years and there was a need to promote innovative ways to raise funds, as well as give genuine SMEs and start-ups an impetus. It also said there was a need “to explore other alternative models of fund raising with appropriate framework in consonance with retail investor protection”.

Three routes, using crowdfunding to sell debt, equity, or shares in a fund, have been suggested.

“Sebi has been proactive and this is its way of saying it doesn’t want a Sahara [Group] or NSEL [National Spot Exchange Ltd] type of scandal to happen in the fundraising world,” said Alok C Churiwala, managing director at Churiwala Securities, a brokerage.

The commodity-focused NESL was accused of conducting illegal trades, while Sahara was accused of irregularities after it raised funds from retail investors.

Source: IFR Asia (link opens in a new window)

crowdfunding, social enterprise