Sebi deliberating on guidelines for crowd-funding, says official

The Securities and Exchange Board of India had, in July last year, come out with draft norms on crowd-funding

The Securities and Exchange Board of India (Sebi) is holding consultations for “evolving guidelines” on crowd-funding.

Crowd-funding typically involves young entrepreneurs and small groups of people raising funds for their ventures through various online platforms involving individuals and organisations.

Sebi whole-time member Rajeev Agarwal said on Wednesday the regulator “was evolving guidelines in consultation with government for funding arrangements for star-up entrepreneurs”.

He said the issue had been discussed by the international board of Sebi in detail but India might have to wait longer for these.

“The subject has not even been debated in great detail in advanced economies such as the US and Europe. India should wait for some time before contemplating regulations and directives on the matter,” Agarwal said.

While it is still in a nascent stage in India, compared with large markets like the US, China and the UK, crowd-funding is catching up fast, especially in the wake of emergence of social media as a key platform for such activities.

The market regulator had, in July last year, come out with draft norms on crowd-funding.

Under the proposed norms, the issuer entities and their promoters and directors would need to meet ‘fit and proper’ criteria of Sebi and could not use multiple platforms to raise such funds within a year, among others.

According to Sebi, there is a need for funding for small and medium-sized enterprise (SME) through alternative sources. The 2008 global financial crisis made it difficult for banks to lend money to the ventures or start-ups, which may have high risk element. However, Sebi said there was also a possibility of systemic risk associated with crowd-funding and chances that investors could be defrauded.

Sebi whole-time member on Wednesday noted the finance minister made an allocation of Rs 10,000 crore to extend funding facilities for SMEs and other splinter groups in the Budget for 2014-15, ‘yet to be utilised’.

“The government and Sebi are making guidelines for the utilisation of this fund, especially for start-up entrepreneurs,” he said. Sebi would continue to protect the retail investors and promote trading in SMEs on the exchanges within the existing guidelines but expressed inabilities of the regulator to broad-basing policy measures in this regard.