Capital market regulator Sebi is holding consultations for “evolving guidelines” on crowd funding that will help start ups raise funds.
Crowd-funding typically involves young entrepreneurs and small groups of people raising funds for their ventures through various online platforms involving individuals as well as organisations.
Sebi whole-time member Rajeev Agarwal on Wednesday said the regulator “was evolving guidelines in consultation with government for funding arrangements for star up entrepreneurs”.
However, Mr. Agarwal said that while the crowd funding issue has been discussed by the international board of Sebi in detail, India may have to wait longer to bring in guidelines on the same.
“The subject has not even been debated in great details in advance economy such as U.S. and Europe and that India should wait for some time before contemplating regulations and directives on the matter,” Mr. Agarwal said.
He was speaking at a Seminar held by PHD Chamber of Commerce and Industry.
While it is still in a nascent stage in India, compared to large markets like the U.S., China and the UK, crowd funding is catching up fast especially in the wake of emergence of social media as a key platform for such activities.
The market regulator had, in July last year, come out with draft norms on crowd funding.
Under the proposed norms, the issuer entities and their promoters and directors would need to meet ‘fit and proper’ criteria of Sebi, while they can not use multiple platforms to raise such funds within a year, among others.
According to Sebi, there is a need for funding for SME through alternative sources as 2008 global financial crisis made it difficult for banks to lend money to the ventures or start-ups, which may have high risk element.
However, Sebi said there is possibility of systemic risk associated with crowd-funding as well as chances that investors could be defrauded.
Sebi whole time member on Wednesday noted that the finance minister made allocation to the extend of Rs. 10,000 crores to extend funding facilities for SMEs and other splinter groups in the budget for 2014-15 “which has yet to be utilised for the desired purpose”.
“The government and Sebi are making guidelines for the utilisation of this fund, especially for start up entrepreneurs,” Mr. Agarwal said.
He also assured that Sebi would continue to protect the retail investors and promote trading in SMEs on the exchanges within the existing guidelines but expressed inabilities of the regulator to broad-base policy measures in this regard.
