Colombian Government Changes Crowdfunding Rules

Until now, the best-known form of crowdfunding was to donate money through the Internet to promote fledgling ventures or business ideas that needed a push to be brought to reality: video games, book or comic publishers, sustainable fashion proposals and even YouTube channels have a place in the museum of projects that have been financed through crowdfunding.

In the world, crowdfunding platforms such as Kickstarter or Buy Me a Coffee have earned a place by connecting those entrepreneurs who lack capital with a kind of “anonymous patrons” who want to contribute to innovation and entrepreneurship. In Colombia, Vaki is one of the best-known platforms.

Recently, a Government decree changed the rules of crowdfunding in Colombia to allow investment in medium and small companies in the agricultural, industrial, commercial or services sector and even in closed collective investment funds .

In essence, what Decree 2105 of 2023 of the Regulatory Projection and Financial Regulation Studies Unit (URF) intends, an entity attached to the Ministry of Finance, is to promote a digital economy where “non-traditional forms of financing” are permitted. (such as crowdfunding) to promote productive chains or strengthen the workforce of SMEs. The lack of resources is what stops these companies the vast majority of the time.

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How will crowdfunding change?

From now on, companies in the agricultural, industrial, commercial or service sectors, as well as autonomous assets, closed collective investment funds and private equity funds, among others, will be able to access collaborative financing. This represents a financial milestone for a market that, despite its growth in recent years, still remained with many restrictions.

Likewise, it will allow companies that are not incorporated in Colombia, but that wish to carry out a productive project in the national territory and intend to finance it through crowdfunding, to do so without major problems. Before the new decree, startups, for example, were not allowed to do crowdfunding, because their headquarters are usually in other countries.

Of course, the decree establishes that only companies that are domiciled in the country will be able to access collective financing , as well as the recipients (the directors of these SMEs) and contributors. “The recipients must be Colombian residents, except when the object of the productive investment project for which they request financing is developed entirely in Colombian territory. The above, without prejudice to the application of tax regulations,” the decree reads.

Likewise, debts that are acquired by companies in crowdfunding models must be reported to risk centers, which will generate more transparent and secure information on the use they will give to their taxpayers’ money.

What impact will this regulation have?

Maryory Ávila , CEO of Inversiones Bloom, explains that these new rules of the game of collaborative financing in Colombia will generate a direct impact on the financial sector and the capital market: “One, they will allow the consolidation of a regulatory framework that will enhance the growth of the different mechanisms. financing and economic growth; two, they will promote financial inclusion and alternative financing mechanisms; and three, they will strengthen the high standards of transparency, integrity and fair treatment of consumers who today support the crowdfunding model in the country.”

“Likewise, it will improve the entry of foreign companies into Colombia, making use of the benefits and possibilities of collaborative financing, attracting new investors and growth opportunities for all,” Ávila highlighted.

Finally, the URF decree also regulates the use of correspondent models to allow crowdfunding to reach more territories, allowing companies that carry out collective financing activities to receive money “for or as a result of carrying out authorized operations.” to these entities, especially intended to be invested in productive projects, as well as their return”, as well as the issuance and delivery of statements or the consultation of balances.

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(Featured image by Flavia Carpio via Pixabay)

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First published in EE. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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