The Capital Market Authority in Saudi Arabia took important steps this week in bolstering the middle market ecosystem by approving the first two trial financial technology (fintech) licenses.
The licenses are the first results from the FinTech Lab initiative launched by the CMA earlier this year as part of the Financial Sector Development Program (one of the Vision 2030 execution programs). The trial fintech initiative will help enhance the competitiveness of the financial market in the Kingdom.
The first licences approved are for Manafa Capital and Scopeer, both organizations focus on providing the local market with crowdfunding platforms. The trial licences will qualify both companies to provide the services in Saudi Arabia.
For those unfamiliar, crowdfunding is the practice of funding a project or venture by raising money from a large number of people who each contribute a relatively small amount, typically on online platforms such as Kickstarter and Indiegogo. Crowdfunding has already proven itself to be a successful alternative in acquiring or investing money in several other markets.
In under 20 years, crowdfunding has grown into a multibillion-dollar industry providing funding options for artists, filmmakers, non-profits, individuals and start-ups.
There a number of benefits associated with crowdfunding, among them, the biggest is the liquidity factor it provides to smaller entrants and companies in terms of access to capital. This is especially the case within the Saudi market where the SME and retail banking sectors are still maturing and access for smaller organizations to capital is often hindered by lengthy administrative and bureaucratic processes. Crowdfunding also hedges the risk for both the business owners as well as the investors.
The middle market companies are in growing need of access to capital given the boom in the Saudi entrepreneurial space. The CMA initiative will hopefully fuel competition within the financial market sector in providing more innovative funding solutions and ease of access to capital for market participants.
In addition, these initiatives will give investors another platform to source new investment ideas and disruptive business models which have the potential to reshape a lot of local sectors. The overall increase in competitiveness as well as collaborative models between investors and entrepreneurs are the building blocks of an innovative, knowledge driven economy.