Loan-Based Crowdfunding in Qatar: What Business Owners Need to Know

As part of Qatar’s Financial and Fintech Strategies, the Qatar Central Bank (QCB) introduced the Loan-based Crowdfunding Regulation to create a regulated environment for crowdfunding in the country. 

Qatar’s regulation for loan-based crowdfunding platforms came into force on August 10, 2023, and aims to empower SMEs while ensuring safety and transparency within Qatar’s financial sector. 

The regulation covers licensed entities, known as “Operators” that provide crowdfunding services and imposes fundraising limitations, defines operator services, and enforces compliance measures to protect investors. 

The Loan-based Crowdfunding Regulation represents a major step forward in Qatar’s fintech strategy. Here’s what it entails.

For platforms

Crowdfunding platforms in Qatar need to have a permanent place to conduct business, for example, an office in Qatar. 

If the crowdfunding operator has a head office outside of the country, it has to submit to the QCB the copy of the license that has been issued by the regulator of the country where the head office is. The QCB may also request additional information about the operator from the regulator of the country where the head office is.

Board of Directors and Staff

The operator must appoint a Board of Directors with at least 3 members and set mechanisms for due diligence, AML, compliance, and to comply with other requirements. The information about the Board of Directors and management of the platform needs to be accurate and updated as soon as any changes are made.

All people responsible for managing the platform shall be of good repute and have appropriate knowledge and experience to work in their positions and be residents of Qatar. 

If the platform wants to offer Islamic products, it should hire a Shariah-compliance officer. 

Information provision

The platform must provide clear information about the type of investment and risks involved and outline a clear exit policy in case the operator decides to exit the Qatar market.

Minimum capital requirements and performance guarantee

There is a minimum capital requirement of QAR 1 million as initial paid-up capital and on a permanent basis. This minimum can be increased or decreased by the QCB depending on the market conditions.

The operator submits a performance guarantee (not less than 2% of the capital requirement of QAR 200,000, whichever is higher) from a bank licensed by the QCB. This performance guarantee may be called on by the QCB if the operator fails to meet its obligations or gets a penalty from the QCB.

The invested funds must not be held in the accounts of the operator but in an escrow account with a QCB-licensed bank.

Key responsibilities

Platforms are responsible for the following:

• Performing due diligence to select suitable projects for fundraising campaigns
• Promoting fundraising campaigns
• Monitoring borrowers to see if they comply with the regulation and handle any breaches if such are detected
• Refunding funds to investors if a campaign fails
• Assess investors and determine their accreditation category
• Reporting on transactions for AML monitoring.
• Determining the rate of return for each campaign.

Fees, fundraising, and compensations

The operator can charge administrative and financing fees from borrowers, and administrative and processing fees from fundraisers. All fees shall be clearly disclosed, and any changes shall be communicated in advance.

Funds for all campaigns can only be raised during the campaign’s validity period, never before or after. The platform is not allowed to receive funds in its name or account, nor can it provide loans or credit to borrowers or investors. It is also prohibited from underwriting loans or assuming credit risk for any campaign on the platform. However, platforms may set up a Contingency Fund to compensate investors for missed or delayed payments.

Outsourcing

The platform is permitted to outsource its maintenance and development to third parties, however, outsourcing the following arrangements is allowed only upon receiving permission from the QCB:

• Compliance
• AML-KYC
• Financial control
• Core business functions.

For investors

Individuals and businesses can invest in campaigns hosted by a loan-based crowdfunding campaign except for:

• Businesses (or their subsidiaries or related parties) that are borrowers in another campaign
• The platform’s staff
• Non-residents of Qatar
• Those who are under 21 years old.

Non-accredited investors may invest up to QAR 25,000 annually. Individuals qualify as accredited investors if they have earned QAR 500,000 annually over the past three years and are expected to continue doing so, or if their net worth exceeds QAR 3,500,000. These individuals are considered to have sufficient experience and knowledge to evaluate risks. Businesses are automatically classified as accredited investors.

Investors have the right to withdraw their participation and receive a refund within the timeframe agreed upon with the platform and the fundraiser. The cooling-off period must be at least 5 business days from the campaign’s conclusion.

For borrowers

To raise funds on a loan-based crowdfunding platform, a business needs to register as a SME in Qatar. 

Loan-based crowdfunding platforms must not be used to raise funds for real estate or other property-managing businesses. 

Publicly listed companies, non-profit organizations, investment funds, banks & insurance companies licensed to operate in Qatar, and non-bank financial institutions are prohibited from raising funds on a loan-based crowdfunding platform.

Borrowers should submit a prospectus to the operator for each fundraising campaign. In this prospectus, borrowers state all the details, such as the purpose of fundraising, the target fundraising amount, investors and the offering period. The borrower also submits to the operator its audited financial statements for the last three years, a business plan, and information about the campaign. 

The funds raised during a campaign cannot be used to repay loans that have no relation to the campaign. 

If a borrower cannot meet the payment obligations to investors, it may be given 60 days to arrange the things. If it doesn’t manage to do so, it is clarified as a defaulter, reported to the QCB and the Qatar Credit Bureau, and prohibited from raising funds on crowdfunding platforms for 6 months from the date that it arranged all payment obligations. Any ongoing campaigns will be closed, and funds will be reimbursed to investors. The operator may also organize an on-site visit or start an investigation to see why the borrower cannot meet its financial obligations.

A borrower shall keep records about the campaigns for 15 years, and the operator may request such records at any time. 

How to launch a loan-based crowdfunding campaign in Qatar with LenderKit

The introduction of clear and transparent regulations in Qatar has created a more favorable environment for businesses looking to enter the loan-based crowdfunding sector, so if you are considering this opportunity, this might just be the time to launch a loan-based crowdfunding platform in the country. 

LenderKit’s white-label crowdfunding software provides a comprehensive and law-compliant tech solution for those seeking to start a loan-based crowdinvesting business in Qatar. 

Equipped with all the necessary functionalities and integrations, LenderKit’s platform can be fully customized to align with specific business requirements and ensure a smooth and compliant launch.

To find out how it all works and discuss details, please get in touch with us.