November 16, 2020 – On October 27, the Security and Exchange Commission of Pakistan (SECP) announced through a press release that can be found here that it had approved the first technology-based crowdfunding platform to begin live-testing in the country.
The statement mentions, “Crowd funding platform is an online digital platform that allows startups and Small and Medium enterprises to fund their capital requirement from investors in return for securities.”
The platform will conduct due diligence on behalf of investors so that a select group of pitches that meet certain quality criteria can be filtered and funded.
“The Crowd Funding business model will be operated/tested in a live controlled environment under the supervision of SECP for 6 months. The applicant company has to follow the conditions entwined with the approval,” read the statement.
The results of this live-testing phase will be submitted to the SECP at the end of six months, which will then determine the future course of action regarding the regulation of crowdfunding platforms in Pakistan.
The initiative is part of the first batch of projects for the Regulatory Sandbox program, which was initiated in January this year by the SECP. According to the Commission, “The Regulatory Sandbox is a tailored regulatory environment that allows entities/firms to conduct limited scale live tests of innovative products, services, processes, and business models in a controlled environment.”
Given the immense impact that crowdfunding platforms like Kickstarter and GoFundMe have had in the global startup ecosystem, the initiative has received much praise from the tech and entrepreneurial community of the country, especially from young platforms hopeful for financial support.
The SECP in a March 2017 statement said that “crowdfunding is not allowed in Pakistan”, and warned the public against any scheme or initiative engaged in crowdfunding. Crowdfunding platforms are used around the world to help startups and small businesses raise funds for their operations and kick start their business. With various limitations put in place that restrict Pakistani businesses and startups to raise capital, the country has seen little progress in its digital economy. However, it is not clear whether the recent announcement is based on the change in status of the legality of crowdfunding in the country, as suggested by the SECP.
Sadaf Khan, co-founder of Media Matters for Democracy, says, “While the recent announcement is a positive development, it’s important that the Commission remains transparent in its decisions. We hope that they will also clarify what resulted in the change of status in the legality of crowdfunding in the country, something that has barred startups from raising money for three years.” She adds that coupled with this, the authorities need to pay attention to the IT sector of the country and offer convenience over setting up unfavourable regulatory regimes.
“This new announcement could be a step towards more positive developments, like introduction of payment gateways like PayPal in Pakistan. Unavailability of platforms that provide convenience, business and boost the economy of countries continue to be yet another hurdle that the Pakistani IT sector and freelancers face in receiving payments from abroad,” Sadaf says. She also says that it is imperative to consider how the current regulatory framework limits digital economy in the country, and rework policies to make Pakistan a favourable market for local startups, SMEs and international investment.