Amman – In recent years, the crowdfunding sector in the Middle East has gained significant momentum, with Dubai-based equity crowdfunding platform Eureeca at the forefront of the industry.
The company’s upcoming smartphone application, as announced in March, aims to democratize digital investment banking by providing the public with access to invest in pre-IPO companies and growth sectors.
This could be a game-changer for crowdfunding in the Middle East, especially in countries like Jordan where strict regulations have stifled the sector’s growth.
Globally, the crowdfunding market has consistently expanded over the years. According to Grand View Research, the size of the market reached USD 10.2 billion (JOD 7.23 billion) in 2021 and is expected to reach USD 28.77 billion (JOD 20.42 billion) by 2030.
However, Statista reports that the Middle East’s share of the total crowdfunding volume worldwide does not exceed 1%, despite the significant financial resources available for investment in the region.
The combined value of sovereign wealth funds in Gulf Cooperation Council (GCC) countries alone, which are state-owned investment funds, notwithstanding privately-owned funds, was estimated in 2021 at USD 1.6 trillion (JOD 1.13 trillion), according to the Sovereign Wealth Fund Institute (SWFI).
These figures include only the Abu Dhabi Investment Authority (ADIA), Kuwait Investment Authority (KIA), and the Saudi Arabian Public Investment Fund (PIF). Other wealth managed by other GCC funds were not included in the estimate.
Meanwhile, the International Monetary Fund (IMF) estimated the value of foreign exchange reserves in GCC countries, as of 2021, to be somewhere between USD 800 billion (JOD 566 billion) and USD 1 trillion (JOD 707 billion).
Notably, the abundance of private funds, credit facilities, and investment portfolios in these GCC countries are not included in the aforementioned estimates.
According to the Institute of International Finance (IIF), in July 2021, the banking sector in the GCC held total deposits of around USD 1.5 trillion (JOD 1.06 trillion). Whereas to the Union of Arab Banks’ 2016 report, the public sector’s deposits in GCC banks comprise around 10-35% of the banks’ finances.
This means that, as of 2016, private sector deposits comprise 65-90% of the GCC banks’ finances.
Assuming that the same ratio of private sector deposits applies in 2021, then the private sector would have access to around USD 975 billion (JOD 691.4 billion) to USD 1.35 trillion (JOD 955.4 billion).
Much of these funds belong to individuals and businesses who could possibly benefit from simple crowdfunding investment opportunities.
If anything, this indicates major untapped growth potential and economic opportunities.
What is stopping us?
The rigid regulatory environment in Jordan, for example, poses significant obstacles to the growth of the crowdfunding industry.
The Jordan Securities Commission (JSC) imposes various restrictions on crowdfunding campaigns, such as limiting access to businesses and legal entities, requiring crowdfunding platforms to be licensed, and holding the platforms legally liable for screening and ensuring the campaigns’ integrity.
Crowdfunding regulations vary from one country to another in the Middle East, and in some countries, such as the Kingdom of Saudi Arabia (KSA), such regulations do not exist at all.
Nonetheless, crowdfunding for individual pioneers and investors remains restricted in almost all Middle East countries that have regulations in place for the sector, even the United Arab Emirates (UAE).
In most cases, these regulations remove the “crowd” from both sides of the crowdfunding process.
Neither can normal individuals, who are not otherwise classified as investors, can invest or finance projects and business ideas they like, nor can individual pioneers and start-ups finance their ideas and operations without meeting the strict criteria set by the authorities.
As a result, these regulations turned crowdfunding in the Middle East into a tech-driven conventional investment operation that is limited to financiers and businesses.
In other words, the funding is not actually crowdsourced.
It is sourced from conventional investors and financiers and is subject to the very same scrutiny and requirements of the conventional banking and investment processes that individual pioneers and entrepreneurs want to avoid because they often do not meet them.
More so, anywhere else in the world, where crowdfunding is otherwise functional; a significant part of the funds goes to non-commercial initiatives and personal projects. Such activities include travelling and other recreational activities that many individuals finance through crowdfunding platforms.
Under the current regulations, in Jordan, UAE, and other countries in the Middle East, individuals cannot benefit from such funding to finance their personal projects. Nor can they make use of these opportunities to finance their start-up and entrepreneurial projects and business, unless they meet specific high-level requirements.
What has changed?
Despite such restrictions, Eureeca’s new smartphone application may be able to overcome some regulatory obstacles, at least in the UAE, and hopefully in Jordan and the entire region.
Eureeca connects individual investors with investment opportunities and institutional and individual investors with start-up founders through the company’s new app.
The presence of over 40,000 investors from 72 countries demonstrates the platform’s strong market presence and the demand for its services.
One significant way in which Eureeca’s app is poised to overcome at least some of the regulatory challenges in the current crowdfunding sector, is that it will make investment open to the public.
The introduction of Eureeca’s app could cause a shift in the crowdfunding industry in the Middle East.
By providing a digital investment banking platform, Eureeca could pave the way for a more inclusive crowdfunding ecosystem in the region, which would benefit a broader range of investors and entrepreneurs, including private non-investor individuals.
Looking forward
Given the rapid expansion of the global crowdfunding market, the Middle East has a tremendous opportunity to increase its share of this industry.
If countries like Jordan are able to adapt their regulatory frameworks to better facilitate crowdfunding, the region could experience substantial economic growth and diversification.
For example, Polaris Market Research projects that the European crowdfunding market was valued at USD 6.4 billion (JOD 4.53 billion) in 2020 and is forecasted to grow at a compound annual growth rate (CAGR) of 12.8% from 2021 to 2028, reaching USD 17.56 billion (JOD 12.44 billion) by 2028.
This highlights the potential for comparable growth in the Middle East.
The governments’ ability to recognize this sector’s economic potential and to implement suitable regulatory frameworks will determine the future of crowdfunding in Jordan and the rest of the Middle East.
If Eureeca’s app is successful in navigating the regulatory environment, it could serve as a catalyst for change and encourage other nations in the region to adopt more crowdfunding-friendly policies.
Ultimately, the success of the crowdfunding industry in the Middle East depends on the ability to strike a balance between investor protection and innovation promotion.
The introduction of Eureeca’s smartphone app could usher in a new era for the industry, allowing a broader range of individuals and businesses to access investment opportunities and contribute to the region’s economic growth.
The current state of the crowdfunding industry in Jordan and the Middle East presents both obstacles and opportunities for future growth. By eliminating regulatory barriers and democratizing digital investment banking, Eureeca’s smartphone app has the potential to transform the industry.
With the right balance between investor protection and innovation, the Middle East has the potential to capitalize on the expanding global crowdfunding market and foster sustainable economic growth throughout the region.
