Central Bank of Bahrain Issues P2B Crowdfunding Regulations


The Central Bank of Bahrain (CBB) has released regulations for debt based crowdfunding. Rules apply to both Shari’a compliant and conventional investments. It is expected that equity-based crowdfunding regulations will be announced later this month.

The CBB announced that for the first time it will be possible for small and medium sized businesses in Bahrain and in the region to raise conventional or Shari’a compliant financing through crowdfunding, following a trend in the MENA region.

General regulations are the same for both conventional and Shari’a compliant crowdfunding platforms. For the latter, an additional requirement is to ensure that the financing structure is Shari’a compliant by engaging a Shari’a advisor or outsourcing this function to a third party. It is interesting to note that Bahrain has decided to block retail investors from participating in investment crowdfunding offers.

“We expect Bahraini entrepreneurs to benefit from the global crowdfunding trend, which provides a viable alternative to bank financing. In particular, the CBB is keen to see Bahrain dominate the Shari’a compliant financing-based crowdfunding market in the region. The demand for Shari’a compliant financing is already high and we expect to see it reflected in the crowdfunding market as well”, said Mr. Khalid Hamad, Executive Director at the CBB.

The highlights of the crowdfunding regulations are as follows:

  • Minimum capital requirement for crowdfunding platform operators is BD 50,000 (USD $ 132,000).
  • Only Person to Business or P2B lending / financing is permitted.
  • SMEs with paid up capital not exceeding BD 250,000 (USD $ 663,000) can raise funds through crowdfunding platforms.
  • These SMEs may be based in Bahrain or outside; however, in case of foreign SMEs the platform operators have to clearly mention the cross-border and jurisdictional risk financiers have to take.
  • It is the responsibility of the lenders/financiers to perform their own creditworthiness assessment on borrowers/fundraisers.
  • Crowdfunding platform operators have to comply with the CBB rules on Anti Money Laundering, Combating Financing of Terrorism (AML/CFT), consumer protection, etc.
  • Only Expert and Accredited investors are allowed to provide financing through these platforms; they can lend up to 10% of their net assets to a single borrower/fundraiser (and sign a self-declaration form to this effect).
  • Retail investors are not permitted to participate given the high-risk nature.
  • Platform operators have to clearly and publicly disclose their fees, charges and commissions.
  • Platform operators may provide financing to borrowers/fundraisers who use the platform subject to obtaining the required license from the CBB to provide credit and adequate disclosure.
  • If a borrower/fundraiser is unable to raise at least 80% of its crowdfunding offer size the attempt would be considered unsuccessful and any monies received would have to be refunded within seven calendar days.
  • A borrower/fundraiser can raise a maximum of BD 100,000 (USD $ 265,000) through crowdfunding in a year; the financing tenor should not exceed 5 years.

The Central Bank of Bahrain has announced a series of measures towards consolidating its position as a regional financial hub, including the introduction of a Regulatory Sandbox to facilitate Fintech initiatives.

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