The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Banking system limitations are restricting the Bahamas International Securities Exchange's (BISX) development of crowdfunding and small business listing platforms, its chief executive has revealed.

Keith Davies, in a recent interview with Tribune Business, said the exchange had "completed internal drafts" of market models for both initiatives, which are designed to boost capital access for Bahamian entrepreneurs and small and medium-sized businesses (SMEs).

He explained, though, that BISX had been forced to "marry" its plans and the market's desire with the capabilities of the Bahamian commercial banking system, which is lagging many other countries.

Mr Davies said entrepreneurs and start-ups seeking crowdfunding typically "enter in information electronically" via a formal market platform, giving persons instant access to all relevant details on the investment opportunity.

"That works in other jurisdictions because the banking system is dovetailed together, and there is a seamless process for clearing and settlement," the BISX chief executive told Tribune Business.

"Our banking system is not like that yet. We're trying to understand what we want, and marry it with the capabilities. We want to allow persons to use their computers to log in and see who is raising money, but how do you get money into a person's bank account to support their crowdfunding application?

"We've looked at the limitations of the system and what we're starting off with. We're looking at internal issues, collaborating with the various banks, and seeing if we could use the Central Bank's settlement system."

Mr Davies said swift clearing and settlement was vital to get investor monies quickly into entrepreneur/start-up hands, and provide a fully functional crowdfunding market.

"All these things have to map together and work in concert," he added. "We want to put something out there that's useful. It's folly to put something out there, build it and think they will come.

"We're crafting a platform that works for the market. Ultimately, we need to modernise our system to find ways to make it quicker, make it cheaper, so that the time to market is much quicker for businesses looking to raise capital."

Despite the potential restrictions, Mr Davies said BISX had made progress in developing platforms that would bring both crowdfunding and SME listings into separate formalised, regulated markets.

He explained that the crowdfunding market model had been designed in accordance with the rules established by the Securities Commission, the capital markets regulator, which unveiled them at a conference earlier this year.

"There's a lot of work and groundwork that no one ever sees, and no one realises," the BISX chief told Tribune Business. "We're really in the weeds, going through the details.

"We have an internal draft that we have effectively completed that deals with the crowdfunding as well as the SME listings. This follows the work and publication by the Securities Commission of the Business Capital Rules, which facilitate companies of a certain size raising capital without going through all the prospectus requirements."

Mr Davies said BISX would release its proposed crowdfunding model for public consultation, adding: "That is something in train. I don't have a timeline for you, but we are working to do that as soon as possible."

Crowdfunding, which involves financing a project or business venture by raising small amounts of money from a large number of people, typically via the Internet, is stepping into the 'financing gap' that Bahamian start-ups and entrepreneurs typically encounter.

It pools money from friends, family and investors and, with the Internet and social media increasingly being used to raise capital, the Securities Commission wants to bring this activity into a formal market with rules to protect both companies and potential investors.

Access to capital, both equity and debt, has frequently been the biggest obstacle complained about by Bahamian businesses, especially smaller ones.

With commercial banks increasingly risk averse, and constrained by laws and regulations from taking a chance, traditional capital sources have shrunk in recent years - especially since the 2008-2009 recession.

Apart from the government-sponsored venture capital fund, the Bahamas Entrepreneurial Venture Fund, this nation does not possess a developed private equity or venture capital market, which have acted as alternative financing sources for small business in developed countries.

As a result, Bahamian entrepreneurs have frequently been forced to rely on their own resources, plus family, friends and so-called 'angel investors' for their financing, together with whatever they are able to access from more conventional sources.

The Securities Commission's crowdfunding rules define a small business as one that employs fewer than 20 employees, with a net income not exceeding $1.5 million. Medium-sized enterprises are those that employ between 20 and 49 employees, with a net income not exceeding $3 million.

The distinction is important, because it determines how much a Bahamas-based company will be able to raise from investors via the proposed crowdfunding market.

The Securities Commission is proposing that both small and medium-sized businesses can raise capital on the over-the-counter (OTC) market, via registered broker/dealers and investment houses.

They will only be allowed to conduct one offering per year, with capital raising-limits of $2 million for small businesses, and $3 million for medium-sized enterprises.

Mr Davies told Tribune Business that the proposed crowdfunding rules, and market, would enable Bahamian companies to raise capital without incurring the costs and time involved in much larger fund-raisings, such as initial public offerings (IPOs).

He acknowledged that BISX did not have a monopoly, or exclusivity, on Bahamian crowdfunding platforms, and added: "If there are other platforms, we welcome the competition.

"Ours will provide a useful service, and also facilitate the needs of users. The focus is on the user. We have to be responsive, adapt to change and pivot as the market moves."

Mr Davies continued: "We now have something to work with, and that will lead into analysis and discussions. Hopefully, once that's done, we will take the next step.

"That's what's consuming us right now. We're making good strides, and forward to completing this project."