Investment Crowdfunding for Businesses and Investors: What the Law Says in Ghana

This article originally published in the Business and Financial Times was written by Wisdom Anku, CEO of Propartners.

The Governing Laws

In Ghana, investment‑based crowdfunding is now subject to a clear regulatory framework involving both the Securities and Exchange Commission (SEC) and the Bank of Ghana (BoG).

Investment crowdfunding or investment-based crowdfunding is primarily regulated by the Securities and Exchange Commission, Ghana. In the exercise of the powers conferred on the Commission by Section 209 of the Securities Industry Act 2016 (Act 929) as amended by the Securities Industry (Amendment) Act 2021 (Act 1062), the Securities Industry (Crowdfunding) Guideline(s) was issued to regulate investment crowdfunding in Ghana. Under the Securities Industry (Crowdfunding) Guidelines 2024, the Commission issues licenses to eligible establishments to provide investment crowdfunding services in coordination or partnership with BoG-regulated institutions operating under the Banks and Specialized Deposit-Taking Institutions Act 2016 (Act 930) to collect, hold, and disburse funds.

The Crowdfunding Guidelines apply to both local or foreign Crowdfunding Intermediaries and Crowdfunding Platforms, as well as custodians and payment gateways, creating a formal legal regime to protect investors and facilitate MSME financing.

The Crowdfunding Intermediary

The Crowdfunding Intermediary (CI) is a company or organization duly licensed by SEC under the Crowdfunding Guidelines. The CI is a self-regulatory entity responsible for ensuring that crowdfunding activities are conducted in accordance with the Guidelines. The CI is mandated to have a risk management framework and operational manual aimed primarily at investor protection and proper functioning of the market. The CI is tasked to present regular comprehensive reports to SEC on crowdfunding platforms, users and transactions. The CI is also obligated to put in place measures to ensure compliance with Anti-Money Laundering and Anti-Terrorism Acts.

The Crowdfunding Platform

The Crowdfunding Platform (CP) is a custom-built or proprietary website, mobile app or similar technology owned by a company or organization duly licensed by SEC under the Crowdfunding Guidelines. The CP designs and adapts its technology to enable the CI to effectively carry out its duties whilst efficiently hosting crowdfunding users and transactions.

How To Raise Funds

A CI receives and vets fundraising requests from business entities. An approved request is profiled on a CP as an online fundraising campaign to raise funds publicly from interested investors for a specified period of time. A business, venture or project (also know as issuer) raises funds or capital by issuing debt, equity, convertible or other approved securities with details of the offer comprehensively presented in an offering document. The offering document is published online along with the fundraising campaign to guide investors on the investment offer.

Who Can Raise Funds

Issuers or business entities that can raise funds must fall in the category of Micro, Small and Medium Enterprises (MSMEs) as defined by the Ghana Enterprise Agency (GEA). An issuer may be a start-up or an existing business. MSMEs that are incorporated as public companies can raise funds directly on a CP. Other MSMEs including those incorporated as private companies can raise funds indirectly through investment vehicles or special purpose vehicles on a CP.

How To Invest

Crowdfunding Intermediaries, Crowdfunding Platforms and Issuers may jointly or severally advertise investment opportunities in accordance with the Guidelines. All available investment opportunities are published on the CP as online fundraising campaigns along with detailed offer documents. Investors are invited to browse various offers on the CP, do requisite due diligence and proceed to make payment for preferred offers (preferred campaigns or preferred businesses) using mobile money wallets or bank cards. The investment process is completed with the issuance of investment certificates or share certificates.

Who Can Invest

Investors for debt, equity, convertible or other approved securities issued by business entities and offered via the CI and the CP are typically retail, accredited and institutional investors. Retail investors represent regular employees, low to middle income persons and members of any vulnerable demography as a very protected class of investors who are not allowed to invest more than 10% of their gross annual income in a twelve-month period. Accredited or Qualified investors are officially recognized by SEC as knowledgeable, experienced, sophisticated or wealthy individuals who are allowed to invest without limit. Institutional investors are privileged investors such as pension fund managers and managers of other collective investment schemes who have both the financial and personnel resources to make grand investments.

Typical Risks

Technology-related risks, early-stage business investment risks, regulation-related risks and economic destabilization risks are among the typical risks.

Investor Protection

Investment-based crowdfunding employs a three-tiered approach to investor protection. At the bottom are the CP investor protection measures that focus on technology-related risks. Next is the CI investor protection approach that ensures compliance by businesses and projects as well as the CP and even investors themselves. On the top tier is the regulator (SEC) investor protection approach that employs regulatory supervision, monitoring and sanctioning as well as public investor education.

Licensed Service Providers

Investment crowdfunding in Ghana is anchored on the regulatory framework comprising various laws. The licensing regime identifies various market players including payment gateway service providers and banks as custodians. Where investment instruments are involved in the crowdfunding transaction, licensed fund managers come in handy. For every investment-based crowdfunding activity, the main players remain the CIs and the CPs such as GrowforMe, Ingwoo and Propartners.