CROWDFUNDING, which has taken the entrepreneurial financing world by storm, is closer to be legally introduced here with the Securities Commission Malaysia (SC) finalising its regulatory framework.
By the end of next week, the regulator will release details of public feedback on its proposed regulatory framework for equity crowdfunding.
“The response we received from various segments of the industry has been good and we are now making some changes to the proposed regulatory framework,” said SC’s executive chairman Datuk Ranjit Ajit Singh.
Crowdfunding websites or platform like Kickstarter in the United States, which are reward-based, have been a boon for budding entrepreneurs and inventors. Even musicians have funded albums through crowdfunding, with contributors getting rewarded, such as having their names printed in the credits of an actual physical CD album.
Equity crowdfunding — which the SC is trying to introduce here — is just beginning to hit its stride with platforms offering investors a share of companies in exchange for funds.
Ranjit noted that regulators view such alternative online portals as a viable market-based financing and investment option.
“This provides a means to not only seek funding but also ‘crowdsource’ ideas and innovations for underserved segments within the real economy.
“At the SC, we strongly believe that the future of 19finance is market-based and therefore enabling means for these funding channels to thrive in an environment that promotes confidence and informed participation is a key imperative, he said at the SC Synergy and Crowdfunding Forum, here, yesterday.
Ranjit said the arrival of social media and increased connectivity has transformed the medium used for crowdfunding, making it more appealing to societies today.
“In fact, the numbers speak for themselves. With over 600 crowdfunding platforms worldwide and total funds raised reaching US$5 billion (RM16.2 billion) at the end of 2013, the total market potential is estimated to grow to US$90 billion-US$96 billion by 2025, with China and East Asia leading the way and accounting for 57 per cent.
“As such, a more sustainable funding mode to bridge the capital gap is needed. Equity crowdfunding lets investors get in on the deal, allowing everyone who understands the risks to have the opportunity to invest in early stage companies.
“It is a rapidly evolving financing channel that raises money through the Internet, allowing for the sale of small stakes in ventures to the man in the street.
“While it will remains a relatively small part of the wider equity and debt capital markets, it is still, in our view, an important channel for capital formation that will have a profound impact on the financial landscape,” Ranjit said.
He said regulation for equity crowdfunding needs to be carefully and well thought out as the main objective is to harness capital from retail investors.
As to when the proposed regulatory framework will be put in place, Ranjit said it will be launched in due course.