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In some countries, Small and Medium Enterprises are using crowdfunding platforms to raise urgently needed finance for their business costs as a way out of COVID -19 financial constraints.  

In Nigeria, the Securities and Exchange Commission (SEC) recently released a draft regulatory framework for crowdfunding “Draft Rules”. The Draft Rules is to the effect that funds can be raised through a public online platform to finance projects or businesses in exchange for shares, debt securities or other investment securities approved by the commission  


The Draft Rules strictly targets Micro, Small and Medium Enterprises (MSMEs) excluding MSMEs operating as digital commodities investment platforms. The MSMEs must however have a minimum of 2 years’ operating track record to be eligible to raise funds through the crowdfunding portal and registered with the SEC as a crowdfunding intermediary in the prescribed form specified under the regulation.  

Fundraising limits 

The fundraising that can be offered and sold by issuers within a 12-month period for a micro enterprise shall not exceed N50 million, while for a small enterprise shall not exceed N70 million and for medium enterprise shall not exceed N100 million. In addition, every crowdfunding platform that facilitates between fundraisers and the investing public(crowd) must be registered with SEC as a crowdfunding intermediary. 

Who can operate the crowdfunding portal? 

Only entities registered with SEC as an Exchange, Dealer, Broker, Broker/Dealer or Alternative Trading Facility may be registered as a crowd trading intermediary although a dealer can be registered as a Restricted Dealer for the sole purpose of crowdfunding under the regulatory framework. These companies however require a minimum share capital of N 100 million, and the prescribed minimum threshold for all offers on the platform shall not be less than 50 % of the fundraising limits.  

In any case, any registered dealer must ensure that the (a)crowdfunding portal is operated, provided or maintained in Nigeria, (b) portal is located outside Nigeria but actively targets Nigerian investors; or (c) components parts of the portal when taken together are physically located in Nigeria even if any of its component parts in isolation is located outside Nigeria.  

Investment limit 

The total investment limit of a retail investor may not exceed 10% of their annual income in a calendar year, while the sophisticated, High Net Worth and Qualified Institutional Investors will not be subject to the above limit. 

Required due diligence on crowdfunding portal 

Crowdfunding portals are required to carry out due diligence on prospective issuers intending to use its platform by complying with all KYC, and AML/CFT regulations and related measures.  

Warning statements 

Before the investor enters into an agreement under the portal, the issuer will be mandated to obtain a signed risk acknowledgment form from the investor affirming that the proposed investment is a risky investment.   

Legal and contractual rights 

Investors have rights of action and withdrawal under the regulation where there is a misrepresentation of financial information or any breach.  

Role of a custodian 

Every crowdfunding portal is required to appoint a custodian registered by the SEC who shall establish and maintain a separate trust account for each funding with a financial institution. The funds will only be released to the issuer if the target amount or the minimum threshold of funds to be raised is met or other specific conditions met.  

General provisions  

It will become mandatory that investors shall not transfer their securities or investments for a period of one year except if a transfer is to the issuer of the securities; to an institutional investor; or part of an offer for sale registered with the SEC. 

Crowdfunding portals and/or their managers and officers are prohibited from soliciting investments or making recommendations.  

The proposed regulation further provided that an issuer shall not directly or indirectly pay a commission, finders’ fee, referral fees or similar payment to any person in connection with an offering other than to the crowdfunding portal. This restriction however does not apply to payments for professional services rendered such as accounting or legal fees. 


The proposed regulation has also provided for a fine of N1 million and/or N10,000 per day where there is a violation of the rules.  

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