On 1 August, the Dubai Financial Services Authority (DFSA) launched its regulatory framework for loan and investment-based crowdfunding platforms, the first such framework in a Gulf Cooperation Council country. The regulations aim to ensure clear governance for FinTech businesses and provide appropriate protection for their customers. They also formalise the DFSA’s approach to regulating crowdfunding platforms which had operated through interim arrangements since 2016. The framework has not been officially released as yet so we will publish a link to the regulations when available.
A particular aim of the framework is to encourage this source of funding to small and medium sized enterprises (SMEs). SMEs are significant contributors to the economy of the United Arab Emirates (UAE). In 2014, they made up around 85% of businesses in the UAE, contributing to nearly 60% to the UAE GDP and employing 60-65% of the UAE work force. In Dubai, SMEs represent nearly 95% of all establishments in the Emirate accounting for 42% of the workforce and contributing around 40% to the total value of Dubai’s economy. Data provided by the Khalifa Fund shows that approximately 50-70% of SMEs have had their applications for funding from conventional banks rejected and loans to SMEs account for just 4% of outstanding bank credit in the UAE, significantly below the MENA average of 9.3%.
The DFSA’s crowdfunding framework follows the launch of its Innovation Testing Licence in May. That restricted financial services licence allows qualifying FinTech firms to develop and test innovative concepts from within the Dubai International Financial Centre (DIFC), without being subject to all the regulatory requirements that normally apply to regulated firms.