Crowdfunding in Nigeria: Assessment of the Legal Framework – Fund Management/ REITs

Crowdfunding in Nigeria is a means by which companies can raise capital by pooling small amounts of money from a large number of people instead of raising funds from a few investors. It is also used to raise funds for personal financial emergencies, medical emergencies or for charitable purposes. This is usually done through internet platforms and through social media platforms as it has proven to be the quickest and fastest way to reach more people in the country. There are also several platforms set up specifically for crowdfunding. These platforms include Kickstarter, Indiegogo, Patreon, LendingClub, Porkmoney, Farmcrowdy, ThriveAgric, GoFundMe being one of the most popular among others.

With one of the major challenges facing startups in Nigeria today being funding, many have turned to crowdfunding as a way to raise funds to fund their startups.


There are four main types of crowdfunding. They include donation-based crowdfunding, reward-based crowdfunding, equity-based crowdfunding, and debt-based crowdfunding,

Donation-based crowdfunding is a form of crowdfunding where individuals help raise funds without expecting to be reimbursed. This is mainly found in crowdfunding for charitable purposes, medical emergencies, to fund community projects, among others.

Reward-based crowdfunding is typically used to raise funds for new startups or businesses where individual donors or investors earn rewards based on the amount of money donated. Here donors or investors get something in return for their investment, usually a product or service offered by the company.

Equity-Crowdfunding is a type of crowdfunding that obliges the company or startup to provide investors with shares of the company. Here, the investors become co-owners of the business.

Debt-based crowdfunding is a type of crowdfunding similar to taking out a loan. It is better than a loan because the interest rate is much lower. Here, the donee may not be required to repay until the business or startup starts generating returns.


The Companies and Related Matters Act (2020) as well as the Investments and Securities Act (2007) expressly prohibit private companies from engaging in crowdfunding. The type of crowdfunding contemplated in this circumstance is equity crowdfunding.

Section 67(1) of the ISA 2007 and Section 22(5) of the CAMA 2020 specifically prohibit crowdfunding by private entities and only allow public companies and statutory bodies or banks created by or under an Act of the National Assembly to accept deposits and savings from the public. Thus, inviting the public to acquire or sell one of its securities could constitute a contravention.

Further, under ISA 67(1), an invitation shall be deemed to have been made to the public, where the offer or the invitation to make an offer is advertised, published or disseminated by broadcast, cinematography or any other means whatsoever. whether. As such, the publication by a private company, of an offer on a Crowdfunding Portal, can be considered as an invitation to the public, and a violation of the ISA.

However, on January 21, 2021, the Securities and Exchange Commission established a new set of crowdfunding rules which, through its provisions, allows private companies to engage in crowdfunding with the required structure in place.

The main provisions of the Regulations are as follows:

  • Eligibility: The rules allow incorporated micro-small and medium-sized enterprises (MSMEs) with a minimum of two years or less operating history to raise funds through registered crowdfunding portals in exchange for investment instruments.1

  • Exemptions: Under the Rules, certain issuers may be exempt from pre-registration provided that the issuer is an entity incorporated in Nigeria and is accredited by a crowdfunding portal to use its platform. In addition, the total amount of transferable securities or investment instruments that may be offered and sold by the issuer within a 12-month period must comply with the following limits:
  1. The maximum amount that can be raised by an average company should not exceed N100 million.

  2. The maximum amount that can be raised by a small business should not exceed N70 million.

  3. The maximum amount that can be raised by a micro-enterprise should not exceed N50 million2.
  • Key stakeholders: The rules provide that any entity involved in crowdfunding in Nigeria must be registered with the Commission. The main participants are fundraisers, investors and intermediaries. The fundraiser is the initiator, creator or debtor of the investment instrument to be issued. Investor is defined in the Act as any person or entity that seeks to make, is making or has made an investment in an investment vehicle with the expectation of obtaining returns.

Rule 4(a) of the Crowdfunding Rules 2021 provides that “any portal which facilitates, operates, provides or maintains interactions between fundraisers and the investing public (crowd) in Nigeria for the purposes of crowdfunding based on the investment must only be operated by an entity registered as a crowdfunding intermediary.” The crowdfunding intermediary is the entity that operates the crowdfunding portal. They must be registered with the SEC. rules impose additional responsibilities on intermediaries, which are information disclosure, due diligence, reporting obligations, data protection and confidentiality, operation of a trust account, compliance and restriction of ownership crossed.

Registration of such an entity is indicated for a fee3.

  • Due diligence: The Rules go further by providing that crowdfunding portals must perform due diligence on potential issuers intending to use the platform.4 It requires these portals to perform background checks on issuers to ensure their suitability and integrity, verify the issuer’s business proposal, and comply with all relevant KYC and AML/CFT regulations as stipulated by the Commission.

The Commission monitors issuer conduct and takes action against issuer misconduct5.

  • Data protection and privacy: The rules provide that crowdfunding portals must establish appropriate safeguards to ensure the confidentiality of information, ensure confidentiality, maintain reliable and secure operating systems, develop systems to avoid operational interruptions, have facilities for backup and insurance, keep copies of all relevant documents for a period of at least seven years and provide investors with copies of documents relevant to the investor within ten days of the date of the request .6

The rules aim to ensure the security of information provided by investors and ensure that crowdfunding portals provide adequate facilities and put in place adequate safeguards to ensure data confidentiality.

  • Operation of the trust account: The rules provide that each crowdfunding portal must appoint a custodian, who must establish and maintain a separate trust account for each funding round on its platform with a financial institution registered by the Commission as a custodian.7


The provisions of the Companies and Related Matters Act and the Investments and Securities Act should be amended to include provisions allowing crowdfunding of private companies. Nonetheless, the Crowdfunding Rules 2021 are a welcome development that seeks to regulate crowdfunding in Nigeria. This would encourage more startups to spring up and support small and medium-sized businesses. It is, however, important to note that the effective implementation of these rules would ensure proper compliance with its provisions and that the Commission bears this responsibility.


1. RULE 2, Crowdfunding Rules 2021. Available online at

2. Rule 3, Crowdfunding Rules 2021.

3. Rules 6 and 7, Crowdfunding Rules 2021.

4. Rule 10, Crowdfunding Rules 2021

5. Rule 11, Crowdfunding Rules 2021

6. Rule 12, Crowdfunding Rules 2021

7. Rule 13, Crowdfunding Rules 2021

Originally published August 11, 2021

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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