HOW CROWDFUNDING HELPS SME's

WHAT IS CROWDFUNDING AND HOW IT HEPLS SME’S

The smooth running of a business is depended on the fund investment into the business. The flow of the money into the business is necessary for survival and growth.

SME contribute nearly 60% of UAEs GDP and is expected to grow to 70% by 2021. The SME sector in the country is facing challenges to raise funds after some conventional banks in the country made huge provisions in the recent past and approximately 50-70 % of the SME’s funding applications get rejected by the conventional banks in UAE.

The Dubai Financial Services Authority (DFSA) has introduced new regulations that will help small and medium enterprises and start-ups to raise funds through crowdfunding.

WHAT IS CROWDFUNDING

Crowdfunding is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet. Crowdfunding makes use of the easy accessibility of vast networks of people through social media and crowdfunding websites to bring investors and entrepreneurs together.

CROWDFUNDING IN UAE

The Dubai Financial Services Authority (DFSA) has introduced new regulations that will help SMEs to raise funds through crowdfunding. The introduction of the regulation intends to license, organize and protect the rights and obligations of all parties involved in specific crowdfunding activities which provide finance solutions for small and medium-sized enterprises (SMEs) in the UAE.

TYPES OF CROWDFUNDING

1.Donation based crowdfunding

This type of campaign has no financial return for the investor. A donation-based crowdfunding is commonly used for charities, nonprofits, arts and medical emergencies.

2. Reward based crowdfunding

Rewards-based crowdfunding is the most common type of crowdfunding option available. This type of crowdfunding involves setting varying levels of rewards that correspond to pledge amounts. A standard rewards campaign offers at least three levels of pledges/rewards

3. Equity based crowdfunding

Equity crowdfunding is the exchange of actual shares in a private company for capital. In this form of crowdfunding, entrepreneurs can set investor caps, minimum pledge amounts, etc. as well as approve or deny investors who wish to view their business documents.

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