The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Newly-implemented crowdfunding rules were yesterday hailed as “a huge opportunity” for Bahamian small and medium-sized businesses (SMEs) who will be able to source equity capital from foreign investors.

Christina Rolle, the Securities Commission’s executive director, told Tribune Business that “there’s no restriction” on participation by international investors even though their investments in SMEs will have to be converted into Bahamian dollars.

“International investors can invest, but their investments will be converted into Bahamian dollars,” she explained. “Foreign investors are welcome; there are no restrictions on foreign investors. They don’t have to get exchange control approval coming in.”

Ms Rolle, though, confirmed that Central Bank exchange control approval will be required of foreigners to convert their Bahamian dollars to foreign currency once they exit their equity investments. It is also unclear whether foreign investment will be allowed in companies in sectors which, under the National Investment Policy, are supposed to be reserved for Bahamian ownership only.

Still, allowing foreigners to make investments in Bahamian SMEs holds out the possibility of significantly expanding the financing pool they have access to beyond the local market. Mark A Turnquest, a well-known small business consultant, yesterday told Tribune Business that the removal of restrictions on foreign investor participation creates “an excellent opportunity” for Bahamian SMEs.

“You’re looking at a huge, open market for SMEs,” he said. “There’s no excuse for not raising money. If you want to play the game with the big boys, you have to start with organising yourself to take advantage of this huge opportunity now.

“There’s a lot of money in this world, and a lot of people wanting to invest. A lot of people see The Bahamas as a little gem and don’t mind investing in our country. The Bahamas is now more competitive. It narrows the gap between the big companies and the small companies.

“It’s [crowdfunding] been a journey but it’s coming to fruition now. When I spoke on it six years ago I was really frustrated because it took so long, but now it’s here. We need to manage it properly, let businesses get off the ground and be innovative.”

Mr Turnquest branded the formalised, regulated crowdfunding market created by the Securities Commission’s Securities Industry (Business Capital) Rules 2021 as “a tremendous boost” especially for innovative, technology-based SMEs that have increasingly struggled to obtain financing from “risk averse” commercial banks and other start-ups.

“This has been needed from five to six years ago,” he added. “It brings a lot to organisations that don’t have the opportunity to go to the local banks and investors. A lot of bright people with creative ideas and technology-driven types of businesses who need the opportunity to begin their way forward to be entrepreneurs can put together a good business plan, management team and market analysis to take advantage of crowdfunding.”

Mr Turnquest, though, said the qualifying criteria employed by platforms such as Arawak X in determining which companies and investors can participate in crowdfunding will be key. 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 or a regulated exchange, is aiming to fill the funding gap by pooling money from friends, family and investors.

The Securities Commission, in unveiling the Securities Industry (Business Capital) Rules 2021, said SMEs can raise a maximum $5m via crowdfunding within a 12-month period through no more than two issues of equity securities to investors.

Businesses eligible to seek capital via crowdfunding must be organised under the Companies Act, operating in The Bahamas, and categorized as a small or medium-sized enterprise. Small-sized businesses are defined as having annual gross incomes of up to $1.5m, while medium-sized businesses have annual gross incomes between $1.5m and $3m.

To reduce the regulatory burden and associated costs, the requirements for filing an offering prospectus with the Securities Commission have been streamlined and reduced. And the requirement to produce audited financial statements has also been lessened in line with the amount of capital a company can raise.

As for investors, individuals - known as retail investors - are limited to investing up to $10,00 per crowdfunding issue, or a total of $50,000 over a single 12-month period. They will be able to trade their shares on the secondary market provided by platforms such as Arawak X and the Bahamas International Securities Exchange (BISX).

Ms Rolle said in a statement: “Small and medium-sized enterprises have long lamented the cost of raising business capital in The Bahamas, which has limited their capacity to grow and, in some cases, to compete and survive.

“Simultaneously, investors continue to seek greater diversity of investment products to choose from to grow their personal wealth in alignment with their investment principles and personal philosophies. They also want confidence that they are protected from unfair practices, market misconduct and other securities and investment fraud.

“These Rules address both sides of this coin, easing access to capital for many entrepreneurs on one side, and providing an appropriate protection regime for retail investors, in keeping with key regulatory standards and best practices, on the other,” she added.

“We are pleased they are finally a formal element of the capital markets regulatory regime, particularly as we seek to recover from the economic impact of the COVID-19 pandemic and the devastation brought by Hurricane Dorian in 2019.”