Économie et Finance

Crowdfunding bill open for consultation, criticism, proposals

le 20 avril 2018

As part of efforts made by the public authorities to enhance the financial inclusion of young entrepreneurs as a means of boosting economic and social development and to channel collective savings into new opportunities, the Ministry of the Economy and Finance has produced a bill on crowdfunding.

This method of financing, known as ‘crowdfunding’ or collaborative finance, has grown rapidly around the world in recent years.

This bill, numbered 15-18, may be consulted by the general public on the SGG website, with the consultation period running from 21st March to 19th April 2018. Comments and observations are invited from anyone before the final version is drafted.

And the Moroccan Capital Markets Authority (AMMC), the body primarily responsible for legislation relating to the financing of the economy by capital raised from the general public, is tasked with generating maximum visibility for this bill so as to ensure that it is complete, prior to parliamentary review.

Aims and legal framework governing crowdfunding

First and foremost, it is important to understand that collaborative finance takes place directly and transparently between entrepreneurs and contributors via online platforms.

There are three types of collaborative finance activity: loans, capital investment and donations.

As far as implementation is concerned, collaborative finance is governed by a legal framework which aims to:

– Attract new sources of funding for micro-enterprises, small and medium enterprises and young innovative entrepreneurs;

– Encourage the Moroccan diaspora to participate actively in the country’s development via a simple, secure and transparent funding mechanism;

– Support civil society by financing projects which have a strong social impact, and which foster human development;

– Free up young people’s creative and cultural potential;

– Enhance the country’s appeal and influence as a financial centre.

This legal framework governing crowdfunding oversees the creation of collaborative finance companies (SFCs), tasked with carrying out the different types of crowdfunding.

The purpose of the collaborative finance bill is to define the legal framework governing the different types of collaborative finance carried out by collaborative finance companies (SFC). To achieve this, the bill provides a comprehensive set of regulations for these activities, including:

  • Establishing the status of the collaborative finance platforms (PFC) manager, in this particular instance, the SFCs, which is similar to other frameworks governing capital markets activities;

  • Defining a system for accrediting SFCs by the Administration and supervising collaborative finance activities, which will be carried out by Bank Al-Maghrib in the case of loans and donations and the Moroccan Capital Markets Authority in the case of capital investment activities;

  • Defining procedures and methods by which PFCs are established and function;

  • Defining the responsibilities and obligations of SFCs in terms of public information, advertising, reporting etc.;

  • Defining the rules for checking projects which are to be financed beforehand, rendering transfers secure and protecting contributors;

  • Setting limits in terms of the amounts raised by project and by contributor for each type of collaborative finance;

  • Defining specific rules for each of the three types of collaborative finance.

It is worth noting that the bill also provides for the possibility of establishing participatory collaborative finance platforms (PFCPs) so as to be able to carry out Sharia-compliant collaborative finance.

Specific features of the bill

As crowdfunding is a new and original initiative for our country, the bill governing its creation contains a number of important details.

Article 4 of the bill specifies that collaborative finance, which is carried out via PFCs, may be conducted in Morocco, in a free zone or in a foreign country. Funds may be denominated in foreign currencies and contributions may originate from resident or non-resident contributors, subject to foreign exchange regulations.

In addition, regardless of the type – loans, project finance or donations – the terms and conditions that would normally apply, as prescribed by previous legislation, are not applicable in this case, as stated in Article 5:

“The provisions of Act No. 44-12 relating to public offerings and the information required of persons and organisations making public offerings, shall not apply to collaborative finance transactions”.

“The funds paid in by contributors in respect of a collaborative finance transaction are not regarded as funds received from the public as defined by the provisions of Act No. 103-12 relating to credit institutions and similar organisations”.

Collaborative finance transactions, under the ‘loans’ category, are not regarded as credit transactions or transactions which are similar to credit transactions as defined by the provisions of the aforementioned Act No. 103-12.

Collaborative finance transactions, under the ‘donations’ category, are not subject to the provisions of Act No. 004-71 relating to appeals to the public’s generosity.

Since loans and donations from crowdfunding are supervised by Bank Al-Maghrib while appeals for funds for investment are the responsibility of the Moroccan Capital Markets Authority, SFCs which manage one or more PFCs are required to apply for accreditation either from BAM or the AMMC. Each supervisory authority has up to 45 days to validate or reject the application for accreditation.

In addition, collaborative finance companies, as profit-making enterprises, are obliged to state that crowdfunding via online collaborative finance platforms is their main business activity. They must also be domiciled in Morocco and have share capital of at least MAD 300,000, which must be fully paid-up on constituting the SFC.

Some of the obligations of SFCs 

In carrying out its business, SFCs are subject to a number of obligations, the most important of which, drawn from the bill’s various articles, are as follows:

  • Provide the public, clearly and comprehensibly, with all the necessary information relating to the PFC’s functioning, including eligible projects, the terms and conditions of selection and the SFC’s terms and conditions of remuneration;

  • Inform the public, clearly and comprehensibly, of the operating procedures for each category of collaborative finance, the related risks, the resulting commitments for the project’s contributors and promoter(s);

  • Ensure that collaborative finance transactions comply with the provisions of this Act and the management regulations, particularly those relating to the type of project to be financed and the suitability of the project’s contributors and promoter(s);

  • Inform the public, clearly and comprehensibly, of the characteristics of each prospective project and the financial terms and conditions specific to the proposed collaborative finance transaction. The information shall primarily relate to the terms and conditions for releasing the capital and making it available to the entrepreneur, the terms and conditions of remuneration and the repayment of contributions.

In addition, an SFC shall specify on the PFC home page, clearly and comprehensibly, as well as in all correspondence and advertising media, its company name, head office address, email address, trade register registration number, accreditation references as well as the account holder’s name and address. Lastly, the SFC must prepare an annual report within three months of the financial year end for each PFC it manages.

About collaborative finance transactions

The collaborative finance bill, in Article 43, specifies that the contributions collected in respect of collaborative finance transactions shall be exclusively assigned, in accordance with the SFC’s management regulations and the project prospectus, to the envisaged project.

As far as the size of the investment and contributions are concerned, the bill specifies, in Articles 45 and 46, that:

  • The amount raised in respect of a single project, which qualifies as a collaborative finance transaction, may not exceed the statutory ceiling for each collaborative finance category of five (5) million dirhams.

  • The cumulative contributions from an individual in respect of a single project may not exceed the statutory ceiling of 250,000 dirhams.

  • The cumulative contributions from an individual, at the end of a calendar year, in respect of collaborative finance transactions may not exceed the statutory ceiling of 500,000 dirhams.

  • Individual contributors who are angel investors are not subject to the aforementioned ceilings.

SFCs, which come under the ‘investments’ category, are subject to AMMC supervision, the terms and conditions of which are stipulated in Article 64 of the bill as follows:

  • SFCs which manage ‘investment’ category PFCs are subject to AMMC control in accordance with the provisions of Act No. 43-12 relating to the Moroccan Capital Markets Authority;

  • The AMMC shall ensure that the companies referred to in the previous paragraph comply with the provisions of this Act, the implementing legislation, AMMC circulars and well as all applicable legislation and regulations;

  • As part of its supervisory responsibilities and in accordance with the provisions of the aforementioned Act No. 43-12, the AMMC is authorised to conduct on-site inspections by any sworn agent, specially appointed for this purpose, of documents belonging to SFCs within its supervisory remit.

  • The AMMC may also ask SFCs to submit any type of information required for it to be able to assume its responsibilities. It shall define a list, content, reporting format, frequency and deadlines.

Lastly, the collaborative finance bill, which comprises more than 75 articles in total, understandably includes provisions relating to the penalties imposed on those who commit violations. The penalties will be disciplinary for certain offences and criminal for the most serious violations.

The attractiveness of such a bill is evident to those who have witnessed the multiplier effects of crowdfunding transactions abroad, catalysed by both the internet, which has proved an invaluable tool, and the fillip provided by different social networks to a number of legitimate social causes and entrepreneurs with noble, humanitarian, or altruistic aspirations.

As far as the participatory aspect of investing is concerned, collaborative finance appeals primarily to young entrepreneurs and start-ups looking for business angel-type funding.

The public authorities’ willingness to organise a one-month public consultation period (from 21st March to 19th April) for this project is as welcome as it is smart.

Afifa Dassouli

Original article : https://lnt.ma/projet-de-loi-crowdfunding-ouvert-a-consultation-publique-demarche-constructive/