MSME’s in Nigeria experience difficulties when raising capital from conventional models. As a result, more businesses are beginning to explore emerging financial alternatives like crowdfunding and this has created a corresponding need for more scrutiny and oversight by the government. In response to these concerns, the Securities and exchange Commission (SEC) announced on January 25, 2021, its new rules and amendments to certain financial instruments and products (the “Guidelines”). As expected, one of the activities significantly affected by the Guidelines is crowd funding in Nigeria.

To properly appreciate the implication of the Guidelines on crowdfunding, it is important to first understand what crowdfunding means.


Crowdfunding can be defined as a method by which individuals or companies raise funds from the public to finance businesses or projects. A crowdfunding platform could be a website portal, intermediary portal, mobile application, or other similar medium of exchange employed to facilitate interaction between fundraisers and the investing public.

There are several categories of crowdfunding campaigns, namely: Donation/social based crowdfunding; Reward and Investment based crowdfunding ;Debt crowdfunding and Equity crowdfunding.

[1]Changes under the Guidelines 

Some notable changes introduced in the Guidelines are:

• Limitation of Investment

Under the new rules, a retail investor can only invest 10% of their net income in a year in crowd funding activities. This places a limit on the amount invested per individual and there may be a decline in the total number of yearly investments. This rule, however, excludes High Net worth Individuals.

• Introduction Of Crowd Funding Intermediaries and other participants
The Guidelines expressly provide for Crowd Funding Intermediaries (CFI). This is a registered entity which facilitates transactions involving the offer or sale of securities or investment instruments through a crowd funding portal. CFI’s are the core participants saddled with creating and operating crowd funding portals (i.e., Platforms/marketplace for the crowd funding issue). Under the Guidelines, both the CFI’s and the actual crowd funding platforms must be registered with the SEC. In addition to CFI’s, the Guidelines specify the following participants in a crowd funding


• The Fundraiser: refers to the originator, maker or obligor of the investment instrument to be issued pursuant to these Rules. Fundraisers must be entities incorporated in Nigeria and have been in operation for at least two years. Or have
technical partners who meet the 2-year operating track record requirement.
• Investors: The Investors are the end takers of the instruments and products from the crowd funding issue. The SEC attempts to differentiate between High-networth individuals, Retail Investors, and Qualified Institutional Investors.

• Custodians: These are the banks who will hold the funds contributed on behalf of the parties. The custodians will facilitate the aggregation of funds deposited and only release to the Fundraiser subject to the criteria of each issuance being met.

• Mandatory registration of participants All participants specified in the rule are required to register with the SEC for purposes of taking part in Crowd Funding activities. Further, approval of registration requests by the SEC is subject to fulfillment of the eligibility criteria.
• Self-regulatory trade associations
The Guidelines also make provision for applications for a self-regulatory trade association to facilitate Crowd funding supervision.
• Work flow highlights for each Crowd Funding Issuance Fundraisers are now required to offer and sell investment instruments to Investors through the Crowd funding Portals (CFPs) while the CFIs are charged with carrying out due diligence on prospective Fundraisers to ensure sufficient disclosure by Fundraisers to the Investor.
• Prohibition on sharing false information to Investors
Crowd funding Intermediaries and the Portals are required to provide sufficient information to both SEC and Investors. The helps to monitor the accuracy of the information shared on the website and ensure compliance with approved guidelines (e.g. not exceeding target amounts approved for each issuance).

Key considerations and potential implication of the new guidelines?

Crowdfunding platforms in Nigeria, particularly in the agricultural sector have increased in the past few years. It may even be argued that crowd farming.[2] is currently the most common example of crowdfunding schemes. Unfortunately, in recent times, there have been calls for more scrutiny due to the increase in the number of “agro-investments gone sour”. These are instances where platforms have absconded with investors’ funds.

It is expected that the Guidelines will bring about the much needed structure and investor confidence. With the introduction of the Guidelines, a crowdfunding portal which facilitates, maintains, operates in Nigeria must now register with the SEC. The same also applies to a crowdfunding portal which is located outside Nigeria but actively targets and markets to Nigerian investors. To avoid sanctions, it is, therefore, critical that both local and foreign interests seeking to set-up platforms seek expert advice on the broadened compliance requirements introduced by the Guidelines before commencing operations.


Clearly, SEC, through the newly introduced provisions, seeks to impose more oversight on crowd funding operations by actively monitoring the activities of the crowdfunding participants in Nigeria. The four participants in the crowd funding chain are interlinked and expected to collectively work towards ensuring accountability on all fronts.

Under the Guidelines, the fundraisers would now need to engage CFIs to facilitate the pooling of funds from investors through the approved crowd funding portals. By introduction of the crowdfunding portals as middlemen, the guidelines will enhance disclosure and transparency in the system to bring more transparency into the sector and facilitate investor due diligence.

Bishop & Rooks is a boutique firm of business advisors, tax experts and accountants that provides assurance, tax, accounting, payroll outsourcing, market entry, regulatory compliance advisory, business intelligence, due diligence reviews on companies raising capital, along with other commercial and transaction support services for ambitious and
forward-looking organizations.


Nothing in this write-up constitutes legal or tax advice of any kind and is provided for informational purposes only without any warranty or guarantee of its fitness. These laws change frequently and professional advice is absolutely necessary.
[1] For further reading on crowdfunding, please click here for an article we issued prior to the release of the Guidelines.
[2] For further reading, please refer to our earlier article on crowdfunding.