Crowd Funding in Nigeria


This is a means of raising funds for a specific cause (project, charitable, creative purpose, or start-up)  by asking a large number of people to donate in small amounts usually for a brief period, it is usually done on social media or sites dedicated for this purpose.

Individuals and businesses can use this method to raise funds

What are the types of crowd-funding

  • Donation based crowd-funding:-  in this model money received are donated for a new project for a promised return, an alternative source for individuals in need of funds to address some challenges like health emergencies, personal project, school fees, natural disasters etc  
  • Investment based crowd-funding:- companies in need of capital sell ownership stakes online in the form of equity or debt which confers the status of shareholder on the donors

This model is used by start-up companies to raise capital to launch a new project to the market.

This is the model of crowdfunding which is of importance to this article.

  • Reward based funding:-   contributors in this model receive tokens or products in return for their donation, which varies according from individuals and based on the size of their contribution


  • For investment based crowd funding, It provides companies (start-up) access to a large pool of investors
  • Investors can participate in the launch of a new product or can receive reward for their investment.
  • Start up companies can raise money without giving up control to venture capital investment.
  • Crowd funding can create social media buzz for the product you intend to launch in the market which can serve as the perfect gauge for public perception of your product.
  • Investors can track the progress of the product they invested in.
  • It serves as an alternative option to bank loans

Regulation of  crowdfunding activities in Nigeria

The Securities and Exchange Commission regulates investment-based crowdfunding in Nigeria.

The rationale for regulation by the Securities and Exchange Commission is to protect investors while encouraging innovation in the conduct of securities business


By the rules, all micro, small and medium enterprises with a minimum of two years operating risk track record are eligible to raise funds through crowdfunding portal registered by the commission


  1. Every crowd funding site is required to be registered with the commission as crowd funding portal
  2. For crowd funding portal to be considered as one in Nigeria
  3. It must be operated and maintained in Nigeria
  4. Even when it is located in Nigeria it must actively target investors in Nigeria
  5. Component part of the platform must be located in Nigeria
  6. The portal must only operated and registered by an operator registered with the commission as crowd funding intermediary
  7. For entities to be considered crowd funding intermediaries they must be registered as dealers, brokers broker/dealers with the commission under the act and the SEC rules.


 For a crowdfunding article to be registered in Nigeria, it must meet certain criteria

  1. The operator will operate an orderly, fair and transparent market in regards to the securities or investment instrument which are traded through its platform  
  2. Anyone who is in charge of the operations or financial management of the platform are fit and proper persons that is they have not been convicted for any offense
  3. The operators have the capacity to manage the risk associated with this business
  4. That the rules of the portal make provision for the following
  5. The protection of the interest of investors
  6. Ensuring proper market function
  7.  Fairness and transparency
  8. Management of conflict of interest
  9. Promotion of fair treatment to users
  10. Ensure there is an opportunity to appeal against decision of the operator


Crowd-funding portals can have their registration revoked for the following reasons

  1. Failure to meet laid down requirements
  2. Failure to maintain the portal for a consecutive period of six months
  3. Failure to pay prescribed fees


 There are certain conditions that must exist for the commission to revoke the registration of a crowdfunding portal

  1. Where the portal fails to meet the requirement under any relevant provision of the rules
  2. Where an operator fails to maintain a portal for a consecutive period of six months
  3. Failure to pay fees prescribed by the commission


The registration may be suspended or canceled in the event that the intermediary contravenes any provision of the act (INVESTMENT and SECURITIES ACT) the rules and regulation, the code of conduct for capital market operators, guilty of fraud, furnished false or misleading information in respect of its activities, fails to submit periodic returns as required by the commission, fails to corporate in any inspection conducted by the commission, fails to resolve client complaint.


  • General obligation:

Disclosure requirement: crowd-funding portals are to disclose any relevant information relating to the platform in a prominent manner

Education:  provide investors with investor education materials and educate investors on risk disclosure

Information: educate investors the platform advances the investment of investors, dispute resolution, operation, the fees charged and other expenses that may be imposed on an issuer

Due Diligence: Crowdfunding portals are required by the commission to carry out due diligence on prospective issuers intending to use the platform.  This is done by carrying out background checks on the issuer with the aim to ensure directors to be fit and proper, verification of the business proposition of the issuer, ensuring compliance with regulations bothering on knowing your customer, anti-money laundering, and combating the financing of terrorism  

  • Monitoring and reporting

Crowdfunding portals are required to monitor the conduct of issuers in order to ensure that fundraising limits imposed on them are not breached

To monitor investors in order to ensure that investment limits are not breached and to classify prospective investors into relevant investment categories.

File monthly reports.    

  • Data protection and privacy

Crowdfunding portals are required to establish guidelines to ascertain the veracity of information published, the security and confidentiality of information published, maintain reliable operating systems, identify and prevent potential operational disruption, store the relevant documents for a period of seven years after the document comes into possession of the portal. Develop an identity theft prevention program.

  • Operation of trust account

Crowdfunding portals are required by the commission to appoint a custodian whose duty is to establish an account with a financial institution recognized by the commission for every funding round which takes place on its platform.  

  • Issue, publication and acknowledgement of warning statement  

Crowdfunding portals are required by the commission to issue warnings to all investors on the home page of the portal, investors on the subscription landing page for each issue, and join all application forms for investing through the portal. This warning must be prominently displayed.

  • Compliance

Crowdfunding portals are required to implement policies relating to its operation which are designed to achieve compliance with the provision of the rules of the commission. These portals must permit the inspection of their business and operation

  • Record keeping

Below are the records crowd-funding companies are required by the commission to keep:

  1. Records of investors registered on the portal
  2. Records of issuer
  3. Records of all communications that occur on the platform
  4. Records relating to persons that use communication channel provided by the crowd-funding portal to promote issuers’ investment
  5. Written agreement entered into by the crowd-funding portal which relates to its business
  6. Annual summary of transactions effected through the crowd funding portal  
  7. Use of manipulation and deception

Operators are prohibited from engaging in any investment activities using manipulation, deception, or fraudulent means


The participants and their functions in brief include:

  1. Issuers: these  are referred to as the originator, maker, obligor or creator of the investment security  which are registered with the intermediary

They are required to maintain an accurate list of investors; outline the rights of investors and ownership of securities or investment instruments; offer securities through a registered crowdfunding portal; file standardized offering document with the crowdfunding intermediary which shall contain information of the user; the proposed way the funds are to be utilized, the nature of its business; the offering is not to be open for a period exceeding 60 days.

  • Investors: any person that seeks to make an investment in an investment vehicle with the expectation of achieving return

they are permitted to invest subject to limitations imposed by the commission in companies hosted on the crowdfunding portal; they are given a period of 48ich they are permitted to withdraw their investment; investors can withdraw their investment if it comes to their notice existence of material adverse facts which placed an impediment of the project of the issuer seven days from notice of the material fact was made public.

  • Crowd funding portal : a website, portal, intermediary portal, application or medium which facilitates the interaction between the fundraisers and the investing public

Crowdfunding portals are required to be knowledgeable about the investment instruments presented on the platform; conduct due diligence on issuers to ascertain their authenticity that is the legitimacy of their operation, the financial condition of the issuers; prescribe the minimum threshold for all offers on its platform; implement measures to prevent fraud on their platform.

                                                REFERENCES in Nigeria

Securities and Exchange Commission of Nigeria crowd funding rule 2020.


About Joshua Owie

Joshua Owie is an associate in the law firm of Kana and Co House of Law, Keffi Nasarawa State, and a contributing writer with Simply Law. He is also an LL.M candidate of Investment Law and Policy at the Faculty of Law Nasarawa State University, Nasarawa State.