Crowdfunding is a generic term referring to the raising of funds from a large number of individuals or entities to finance a project, through an online platform. The main purpose of this model is to support entrepreneurship, the digital and cultural economy, and social and humanitarian projects.
Three actors are typically involved in crowdfunding initiatives:
- project initiators who require funds
- platform operators
In Morocco, crowdfunding has undergone a significant evolution: according to statistics shared by the Smala & Co platform for 2010-14,1 more than 70 projects were financed through crowdfunding, with a total amount exceeding MAD2.2 million.
Crowdfunding provides access to many opportunities and has many advantages, including portfolio diversification, the ability to raise financing without capital transfer, and the possibility of investing in the real economy, particularly in SMEs.
However, in the absence of clear regulations, there is significant uncertainty with this method of financing, and each crowdfunding model has its own legal consequences. Indeed, depending on the financing methods used, the crowdfunding platform or the project initiator may be subject to banking or stock exchange regulations (when it comes to the provision of investment services), to regulations relating to banking operations, or to regulations governing public offerings.
In March 2018, the Treasury and External Finance Department submitted to Bill
n°15-18 governing crowdfunding activities for consultation.
The Bill sets out five major objectives:
- mobilization of new sources of financing for the benefit of VSEs (very small enterprises) and SMEs
- the active participation of the Moroccan diaspora in the country’s development projects
- supporting civil society in financing projects with a high social impact and human development
- unleashing the creative and cultural potential of young people
- strengthening the attractiveness and influence of the country’s financial center
This article outlines the contributions of this Bill in the form of concrete questions. Topics include:
- crowdfunding management in Morocco
- the terms and conditions of a crowdfunding implementation
- the different types of crowdfunding
- he control of this form of financing
How will crowdfunding be managed in Morocco?
Under the Bill, crowdfunding is defined as a fundraising operation via an electronic collaborative funding platform, managed by a collaborative funding company (article 1 of the Bill), and a third option relating to Islamic finance is also suggested.
The scheme for the electronic collaborative funding platform (plateforme électronique de financement collaborative, or PFC) is the electronic platform through which project initiators and contributors are connected to each other to carry out crowdfunding operations (article 2). PFCs are classified into categories according to the nature of the crowdfunding operations they carry out: loan, investment or donation platforms (article 3).
The Bill sets conditions for the implementation of a scheme provided for the collaborative funding company (société de financement collaborative, or SFC). The SFC must respect certain obligations and prohibitions.
Implementation of the SFC
The creation of an SFC must meet various criteria described by the Bill (article 15), including:
- having as its main activity the management of a PFC; and
- having a minimum share capital of MAD300,000 fully paid up at the time of its incorporation.
To meet the needs of the PFC, the SFC must enter into a service contract with a credit institution duly authorized by Bank Al Maghrib (article 8). More precisely, a special account for each project submitted must be made available to the authorized credit institution (article 41).
The SFC is also required to join the association of crowdfunding companies (association des sociétés de financements collaboratifs) (article 68).
Obligations relating to the purpose of the SFC
The purpose of the SFC is to manage PFCs (articles 2 and 7). All PFCs are created at the initiative of an SFC, which draws up the draft PFC management regulations and its technical architecture (article 3). It can create or manage PFCs of different categories (article 14). However, the same project cannot be proposed on several PFCs at the same time.
As manager of the PFC, the SFC performs all acts necessary for the execution of its mission, including the following:
- distribution of project presentation notes on the PFC
- ensuring that funds collected from contributors are handed over to project initiators thanks to account holders
- preparation and presentation of crowdfunding contracts for the signature of the parties
- management of accounts along with the appropriate institution holding the accounts
- management of the project initiator’s funds and its transfer to the contributors
- completion of all formalities necessary to achieve the purpose of the PFC (article 24)
Amounts collected as part of a crowdfunding transaction may not be subject to insolvency proceedings (article 27).
Obligations relating to the information of the contributor
The SFC has obligations prior to the provision of funds by the contributors prior to the launch of the crowdfunding operation, prior to the conclusion of the financing contract, and after the financing operation.
Obligations prior to the provision of funds
The SFC must establish simple procedures for the registration and withdrawal of any contributor and for the submission of projects for funding through the PFC. Overall, the terms and conditions for managing crowdfunding operations must be clearly defined and accessible (article 30).
Before any contributor registration on the PFC, the SFC must check (article 31) the following:
- the identity of the contributor
- the completeness and conformity of the legal documentation relating to contributors
- the contributor’s knowledge of how the crowdfunding category works
- the contributor’s knowledge of the risks related to crowdfunding and the risks specific to the category of financing in question
- the contributor’s knowledge of the PFC management regulations and the specific conditions for financing the project in question
Obligations prior to the launch of the crowdfunding operation (article 32)
Prior to the launch of the crowdfunding operation, the SFC must do the following:
- ensure the completeness and conformity of the project presentation note with the provisions of this Bill and the PFC regulations
- verify the identity of the project initiator and the company’s managers
- ensure the completeness and conformity of the legal documentation relating to the project initiator
- ensure that the project initiator is aware of how the crowdfunding category concerned operates, the risks associated with it, and the resulting commitments
- ensure that the project initiator is aware of the PFC’s management regulations and the specific conditions relating to suggested crowdfunding operation
- ensure the debt capacity of the project initiator
Obligations prior to the conclusion of the crowdfunding contract (article 33)
Prior to the conclusion of any crowdfunding contract, the SFC must check the following:
- in the case of corporate contributors, the legal documentation authorizing the investment
- the acknowledgement and acceptance by the contributors of the project presentation note
- contributors' knowledge of the financial conditions specific to the crowdfunding operation in question
- the knowledge and acceptance of the provisions governing the withdrawal of the contributor
Obligations subsequent to the crowdfunding operation (article 34)
The SFC must:
- provide the public, in a clear and understandable manner, with all information relating to the functioning of the PFC;
- inform the public in a clear and understandable way, of the operating modalities of each category of crowdfunding, the related risks, the resulting commitments for the contributor and the project initiator;
- ensure that crowdfunding transactions comply with the provisions of the Bill and the PFC management regulations; and
- inform the public in a clear and understandable manner of the characteristics of each project presented and the financial conditions specific to the crowdfunding operation.
The SFC shall also disclose on the PFC its corporate name, the address of its business, the references of its authorization and the name and address of the account-holding institution (article 35). It must prepare an annual report for each managed PFC (article 36) which must be made available, on the PFC website, for public inspection no later than three months after the end of the financial year (article 37).
Furthermore, the SFC must provide contributors, for each funded project, with a periodic situation to monitor the status of the project and the contribution concerned (article 38).
Finally, the SFC must communicate to Bank Al Maghrib, at its request, any information relating to its crowdfunding activities (article 39).
In addition to these obligations, SFC is subject to the payment of an annual fee for each PFC it manages to Bank Al Maghrib or the Moroccan Financial Markets Authority. The methods of calculation will be determined by further regulation (article 67).
The SFC and the credit institution are individually or jointly and severally liable (article 40).
The SFC may not undertake any activity or incur any obligations, financing or management costs other than those necessary to achieve the purpose of the PFC and expressly provided for in this Bill and the PFC management regulations (article 23).
The SFC may not use canvassing to mobilize funding through the PFC and may not use the funds collected for a project for purposes other than those for which they are intended (article 25).
It may not participate in crowdfunding operations as a contributor or project initiator, nor be a shareholder, directly or indirectly, in the company that carries out the project presented via the PFCs it manages (article 26).
Participatory collaborative funding platforms (plateformes de financement collaboratif participatif, or PFCP)
This is a crowdfunding method that complies with Sharia law (article 2).
In order to be able to constitute a PFCP, an assent must be sought from the Superior Council of Ulemas on the draft management regulations of the PFCP. Bank Al Maghrib or AMMC, depending on the crowdfunding activities, must submit to the Board a file containing a description of the PFCP’s planned activity and the draft of its management regulations.2
What are the terms and conditions for implementing collaborative project funding?
Explicit rules relating to the geographical location of the projects and its contributors, the amount investments, the duration of the project, and the form taken by the financing are set out by the Bill.
Geographical location of contributors and projects
Projects financed by PFCs can be located either in Morocco, in free zones3 or in a foreign country and denominated in foreign currency.
Contributions may come from resident or non-resident contributors, in compliance with exchange regulations (article 4).
The text limits the amount of funds paid for each collaboration or project financed through crowdfunding to MAD5 million (global change) (article 45).
The total contributions of an individual for each project may not exceed an amount set by regulation, up to a maximum of MAD250,000.
The aggregate contributions of an individual, at the end of a calendar year, to crowdfunding operations may not exceed an amount set by regulation, up to a maximum of MAD500,000 (article 46).
Business angels are not governed by the above-mentioned thresholds.
Duration of the project
The duration of the crowdfunding operation may not exceed the duration which will be determined by further regulation. If the amount of contributions requested for the project is reached before the end of the financing operation, the SFC suspends the contributions (article 44).
Form of financing
Any crowdfunding operation must be carried out under the terms of crowdfunding contracts entered into between the project initiator and the contributor, which must comply with the clauses of a template which is set by Bank Al Maghrib (article 47).
What are the different types of crowdfunding?
The text provides for three financing formats, namely:
- the loan with or without interest
- the direct donation
- the investment with acquisition of shares in the company by the lender
Crowdfunding operations in the investment category
This type of financing is carried out in the form of an equity investment, direct or indirect, in a capital company (article 52).
Before the initiation on PFC, the SFC must ensure the completion of the preliminary feasibility study of the proposed financing operation and the valuation of the planned project (article 53).
Crowdfunding operations in the loan category
This type of financing is provided in the form of a loan, remunerated or free of charge, granted by the contributors to the project holder, the terms and conditions of which will be determined by Bank Al Maghrib (article 54).
When a loan granted, as part of a crowdfunding transaction, is remunerated, the interest rate may not exceed a maximum rate set by Bank Al Maghrib (article 55).
Crowdfunding operations in the donation category
This type of financing is provided in the form of a cash donation to a project holder.
If the donation exceeds MAD500,000, it must be authorized in advance by the relevant authority (article 56).
Who controls the operations?
Bank Al Maghrib will be responsible for supervising inter-personal loans and donation financing. Bank Al Maghrib must ensure that the companies under its supervision comply with all applicable laws. It may therefore carry out controls and ask for any document it requires (article 64).
The Moroccan Capital Market Authority (AMMC) will be responsible for supervising capital investment activities (article 9). The AMMC must also ensure that the companies under its supervision comply with all applicable laws. It will be able, in the same way as the Al Maghrib bank, to carry out controls and ask for any document it requires (article 65).
In order to respond to requests from the AMMC and Bank Al Maghrib, the SFC must appoint an auditor, responsible for controlling and monitoring the accounts of the SFC’s crowdfunding activities. The auditor is appointed for a period of three consecutive financial years from among the accountants registered in the table of the Order of Accountants (article 66).
Before carrying out its activity, the SFC must submit an application for approval to Bank Al Maghrib or the AMMC in exchange for a receipt; a copy of the application must also be sent to the administration (article 10).
The approval file will contain information relating to the human, technical and financial resources used by the SFC to carry out its activity, as well as the draft PFC management regulations (article 11). However, the approval may be withdrawn by the administration in the following cases:
- As requested by the SFC
- When the SFC has not started its main activity, after 24 months from the date of its approval
- When the SFC has no longer carried out its PFC management activity for a period longer than 24 months following the last crowdfunding operation
- When it no longer meets the conditions mentioned in section ii, I of the present article
- When the SFC is subject to insolvency or liquidation proceedings
- As a sanction
Any withdrawal of approval shall be notified in the same way as when it was granted. Any withdrawal must be justified. In the event of withdrawal, it is the responsibility of the competent authority to ensure that the SFC has taken all necessary measures to safeguard the interests of contributors and project initiators (article 17).
Withdrawal of accreditation shall result in the removal of the SFC from the list of crowdfunding companies and the closure of the PFCs it manages and the transfer of their activities to one or more SFCs designated by the competent authorities (article 18).
This Bill therefore clearly defines a legal framework for crowdfunding quite close to the existing framework in Europe (France for example). Its implementation will create a trustworthy environment necessary for the development of this method of financing in Morocco. Its expansion will significantly benefit the development of the local economy, particularly VSEs and SMEs.
1 Smala & Co, initially a crowdfunding platform under French law, is migrating to a new area of activity - Morocco.
2 Further details about operating procedures are defined in articles 57-63 of the bill.
3 Free zones in Morocco: Tanger, Nador, Tanger Méditerranée, Kenitra, Laâyoune, Dakhla, Nador Betoya, Nouaceur, Tanger Automotive City, Oujda, Fès Ras el Ma et Technopolis à Salé.