Uncertain demand for crowd funding in local market

As the new rules which would allow for small business crowd funding are finalized, there is no firm data on whether there is market appetite from Bahamian institutional or retail investors.

The Business Capital Rules, 2021 are expected to be complete within the next week or two, according to Executive Director of the Securities Commission of The Bahamas Christina Rolle, who said the commission does not have a real indication of market demand, but she believes there is a healthy amount.

“We’re developing these rules because we think it is a way for us to meet a gap that is currently in our market – entrepreneurs’ access to capital. We know that the entrepreneurs’ cry is the banks aren’t lending as much as they ought to to small businesses and it’s almost impossible to raise capital under the Securities Industry Act,” she said during an appearance on Guardian Radio talk show Z Live.

“So we’re really developing these rules without market data to say there is some demand. We think that if we were to wait for market data, that is a very difficult thing to achieve sometimes in our environment. I mean the most you can do is get information based on savings, but based on the anecdotal feedback that we have we think demand is there, but I wouldn’t say that we have hard data to support that.”

Speaking to market activity since the onset of the COVID-19 pandemic, Rolle said, “We see a fair trickle of private placements. We don’t see a lot of offerings to retail investors, but we see a fair trickle of private placements and offerings of nature to accredited investors. I think that really is a function of the risk aversion in our market, as well as the appetite for capital markets investment in the Bahamas.

“And just to note, that isn’t unusual in a small jurisdiction such as ours. In fact, for those who tend to criticize the size of our market, we actually have a decent-sized market per capita and so the activity that we see in it per capita isn’t unreasonable.”

Minister of State for Finance Senator Kwasi Thompson announced earlier this month that Bahamian small businesses would be able to raise up to $5 million through crowd funding under new rules.

Investment currently falls under the Securities 

Industry Act, which Rolle said makes it difficult for smaller enterprises to raise capital because of the stringent requirements.

She said the rules would effectively be waiving certain rules for investment to make it easier for small businesses to access funding.

“The requirements under the Securities Industry Act are very, very onerous and so the commission acknowledges that the ordinary person – an entrepreneur who wants to raise $1 million or $2 million – will probably not be able to meet those requirements. So what I will say to them is to wait a couple of weeks. The Securities Commission, what we’re in the very final stages of doing right now is developing the Business Capital Rules and they are rules that fall under the Securities Industry Act, but the rules themselves give reduced requirements for an entrepreneur who wants to raise up to $5 million, who can do so by either going through a broker or using a crowd funding platform and they would have reduced requirements,” she said yesterday.

“We’re using our power to waive certain requirements under the Securities Industry Act to produce these rules. For example, for an IPO a promoter will need to produce audited financial statements. The audited financial statements will not be required for up to $5 million, but they will have to make some financial disclosures. So it would be much reduced requirements. We’re in the very final stages of putting that together and we anticipate those rules will come into effect before the end of April.”

Rolle said there is a technical review to complete with the Law Reform Commission regarding a couple of changes that were made to the rules recently.