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Crowdfunding in Nigeria : The New SEC Guideline

* Reviewed 26th August 2021*


Crowdfunding is a means of raising funds adopted by business owners, especially startup founders. Its popularity has grown around the world and Nigeria hasn't been left behind. For businesses in Nigeria that have crafted a value proposition out of getting people to pool their money together to finance some profitable project, it’s no longer business as usual. Crowdfunding platforms, mostly in the agricultural space, have proliferated in Nigeria over the past few years.

A variation of crowdfunding known as crowdfarming is a popular model adopted by most of the  “agritech” startups in Nigeria.  Crowdfarming is the most common example of crowdfunding schemes in Nigeria. Ideally, such payouts should happen as scheduled, with no stories. In recent times, there’s been an increasing number of painful tales of “agro-investments gone bad” in Nigeria.

Updating the rules is SEC Nigeria’s attempt to provide a framework around who can participate in crowdfunding, drive increased transparency around Crowdfunding issues and create more accountability to investors.

Key Highlights of the new SEC regulations

  • SEC introduced Crowdfunding Intermediaries (CFIs) They are responsible for facilitating crowdfunding transactions such as offer for sale of securities or instruments through it's portal. This means anyone seeking to raise money through a crowdfunding service will have to go through a Crowdfunding Intermediary. Thus, a fundraiser (the initiator of the fund) will need to go through a CFI web portal to raise capital.
  • The new rules also limit the amount retail investors can invest in a crowdfunding transaction to just 10% of their net annual income in a year. This means individuals cannot invest more than 10% of their net salaries in crowdfunding activities. But this excludes High Networth Individuals who do not have limits 

The new rules specifically state the following four (4) participants in a crowdfunding issuance.

  • Fundraiser, 
  • Crowd-Funding
  • Intermediary,
  • Investors, and Custodians.

There is also a provision for applications for a self-regulatory trade association to facilitate crowdfunding supervision. The Fundraiser is the originator, maker, or obligor of the investment instrument to be issued pursuant to these Rules. Crowdfunding Intermediary (CFI) is an  entity organized and registered as a corporation to facilitate transactions involving the offer or sale of securities or investment instruments through a Crowdfunding Portal (CFP); Investors: As defined by the act; relates to end takers of the instruments and products from the crowdfunding issue.

The SEC attempts to differentiate between High-net-worth individuals, Retail Investors, and Qualified Institutional Investors. Custodians are the banks who will hold the funds contributed on behalf of the parties. This means anyone seeking to raise money through a crowdfunding service will have to go through a Crowdfunding Intermediary (CFI). Thus, a fundraiser (the initiator of the fund) will need to go through a CFI web portal to raise capital..

To clarify the terms, the fundraiser, as in the above, is the platform itself that wants to finance an operation via a crowdfunding arrangement, like an agritech startup, for instance. The investors are the group (or crowd) that brings in the funds that are pooled, while the custodians are the banks that hold the funds contributed on behalf of the parties. Custodians enable the aggregation of funds deposited and only release to the Fundraiser subject to the criteria of each issuance being met.

The new workflow is designed such that fundraisers (which until now was the crowdfunding platform itself) would now need to engage CFIs to facilitate the pooling of funds from investors via the approved Crowdfunding Portals (CFPs).

Also, these CFIs will ensure that there are sufficient disclosures by fundraisers to Investors about the purpose and use of funds. The amounts being raised will be safely kept at a Custodian for the duration of the fund-raising window and released to the Fundraiser subject to meeting criteria. Apart from that, CFIs and CFPs are required to provide a plethora of information to both SEC and Investors.  The portals are to also help ensure compliance with approved guidelines (such as ensuring set amounts are not exceeded in a crowd fundraising).


The new Crowdfunding regulations are a welcome development. The introduction of technology portals to enhance disclosures about funds, especially, would bring more transparency into the sector and facilitate investor due diligence.

You can see our article on REGULATORY FRAMEWORK FOR OPEN BANKING IN NIGERIA for more insight on how open banking operates in Nigeria.