BoG releases Crowdfunding Policy for banks, explains basis for regulating sector

The Bank of Ghana (BoG) has released the Crowdfunding policy to guide banks in this transaction.

This policy will promote innovative digital crowdfunding solutions that comply with data protection and customer privacy regulations, good governance and accountability, relevant Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) norms, liquidation procedures and protection of contributors’ interest.

Locally known as “susu”, “nnoboa” or “ntoboa”, the concept of crowdfunding is not new to Ghana and has traditionally been used by families, groups or communities to mobilise money to provide for the needs of their members. Market women, fishmongers, farmers, traders, among other groups, have used this informal system for instance to raise funds for businesses, payment for medical bills, funeral expenses and the education of their children.

In recent times, FinTech innovations in digital platforms and payments is revolutionalising the crowdfunding system by extending the scope of fundable projects and the geographical coverage of service beyond national boundaries. High patronage of digital crowdfunding service has been observed among associations and corporate entities in order to raise money to fund development and humanitarian projects. This development holds potential for deepening financial intermediation and improving financial inclusion. As a result, it must be provided with conducive regulatory environment for orderly development.

Explaining how crowdfunding works, the central bank said all the crowdfunding models require both the fundraiser and the funder to do due diligence on the platform before considering to raise funds or to fund a project on the platform. The funder has the obligation to further research on the fundraiser’s profile.

Due diligence entails thorough research on the platform, fundraiser and project review, project platform reviews, project articles and studies, seminars and trade associations.

The fundraiser and funder sign up on the selected platform and agree to the terms and conditions on the platform after due diligence is done.

It is required of the fundraiser to set the funding limits and define rewards (if applicable). The fundraiser also submits documentations to the platform and provides responses to the funders’ questions. The funder on the other hand decides and confirms funding amount and further makes payment online into an escrow account.

After the target amount is reached, funds are transferred to the fundraiser minus fees and commissions charged by the platform while the funder receives any reward that is due depending on the type of crowdfunding model. In the situation where the target is not attained, funds are returned to the funders.

Explaining the basis for regulation, the BoG said “Extensive financial sector regulatory reforms within the past ten (10) years has laid the foundation for safe and efficient delivery of digital financial services.

“Laws enacted as part of the reforms include Payment Systems and Services Act 2019 (Act 987), Data Protection Act 2012 (Act 843), Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930), Securities Industry Act, 2016 (Act 929), Anti-Money Laundering Act, 2008 (Act 749), Deposit Protection Act, 2016, (Act 931); and the Cybersecurity Act 2020. These laws collectively provide the legal basis for digital delivery of crowdfunding product and service, on which Bank of Ghana’s crowdfunding policy is anchored.