Rules for Shariah compliant crowdfunding

The?Capital Market Authority (CMA) of Oman ?has issued rules for crowdfunding through Decision No E/153/2021 (Rules). The Rules, which came into effect on the 22nd of November 2021, establish and regulate crowdfunding in Oman. Earlier, in August 2021, draft Rules were made available by the CMA for public feedback.

This move comes as part of the Omani government’s efforts to provide opportunities for cross-border investments; to digitize, develop and diversify the economy; to attract foreign investors into Oman, and to further Islamic finance, all as part of ‘Oman Vision 2040’. Crowdfunding provides a relatively convenient financing solution for, inter alia, MSMEs that often lack technical and/or financial capacity to arrange loans from institutional lenders.

The Rules provide a comprehensive code on crowdfunding covering, inter alia, (i) licensing of crowdfunding operators, (ii) types of permissible investors, (iii) modalities for crowdfunding, (iv) information/documents required from the persons seeking funding, (v) requirements to obtain a crowdfunding operator’s license, (vi) fit and proper criteria for personnel of crowdfunding operators, (vii) regulatory compliance requirements in respect of crowdfunding operators, (viii) mandatory provisions to be included in crowdfunding operators’ policies/processes/standard operating procedures, and (ix) obligations of crowdfunding operators.

According to the Rules, crowdfunding would be carried out through the intermediation of online platforms to be provided by a CMA-licensed operator to the CMA’s satisfaction and under the latter’s constant regulatory supervision.

The Rules provide for four methods through which crowdfunding may be provided, these being: (i) as a donation, (ii) in consideration of a reward, (iii) against equity, or (iv) peer-to-peer. The Rules recognize and regulate Islamic crowdfunding in the form of Islamic investment notes that constitute securitized joint ownership in?Shariah-compliant assets and investment projects offered through the platforms.

Where Islamic investment notes are offered through a crowdfunding platform, Chapter 11 of the Rules requires the operator to appoint a?Shariah ?advisor to determine whether or not the Islamic investment notes, being offered, are compliant with?Shariah ?principles.

The Rules also require the operator to maintain a?Shariah ?- compliant bank account (with an Islamic bank or window licensed by the?Central Bank of Oman ) allocated for the receipt of amounts raised by Islamic products being offered through crowdfunding. This requirement demonstrates that all aspects of the crowdfunding process are required to be compliant with?Shariah ?principles.

The Rules represent an important step toward, inter alia, the expansion of the role of Islamic finance in the funding of MSMEs operating in Oman under the supervision of the CMA. Islamic finance structures, which are mostly based on the concepts of partnership and risk-sharing, are ideal for financially supporting MSMEs effectively. This financial support is key to the growth of MSMEs, which have been a long-standing cornerstone of the Omani economic diversification strategy.

Mansoor J Malik is the senior partner and Zarrar Mir is the associate at?Al Busaidy ,?Mansoor Jamal & Co . They can be contacted [email protected][email protected]?respectively.

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