Legalities of Crowdfunding in the UAE

20 Apr 2022

What is Crowdfunding? 

Crowdfunding is the method of generating capital from several people such as friends, family, investors through a collective effort via social media platforms and specific crowdfunding platforms for a start-up or to finance a business. Crowdfunding is the opposite of the traditional forms of financing a business. It is much easier than other conventional forms of funding a business; it takes less time and can easily track the people interested in funding and investing in any business. It is usually difficult to get funds for Small and Medium Enterprises (SMEs); most likely, 50-70% of applications of SMEs for funding are rejected by the UAE banks. SMEs contribute to the UAE economy around 60% of its GDP. Crowdfunding is required to grow SMS in the UAE. 

In the UAE, the UAE Central Bank has legalized crowdfunding by adopting crowdfunding techniques to develop financial technology businesses. As it is a fact that in the UAE, all the fundraising activities for charity and other social causes are regulated by the state-based registered channels. 

The regulating entities such as the Central Bank of the UAE, The Securities and Commodities Authority (SCA) regulates financial matters, in Abu Dhabi, Financial Services Regulatory Authority (FSRA) in Abu Dhabi Global Market (ADGM), in Dubai, Dubai Financial Services Authority (DFSA) in Dubai International Financial Center (DIFC) regulate the matters of crowdfunding. 

The Dubai Financial Services Authority (DFSA) has set forth a regulatory framework for loan and investment-based crowdfunding, known to be only one of its kind in the GCC. The primary objective of this framework is to protect the rights and obligations of the parties taking part in the particular crowdfunding activities and licensing and organization of such platforms. Such crowdfunding regulations provide small and medium-sized businesses with finance solutions and support them to grow and accelerate. 

The crowdfunding platforms should be licensed or registered with the Central Bank or their relevant regulatory bodies such as DFSA, SCA, or FSRA for legally operating their crowdfunding platforms; otherwise, it is prohibited to operate any such financial activities in UAE. Before heading registration you may need some vital advice from financial experts who are clearly updated with the crowdfunding legalities. This could help you to carry out initiation smoothly for raising necessary funds. Typically, crowdfunding consists of three parties:

  • the person raising funds
  • the party providing the crowdfunding platform
  • the public providing funding through the platform


Crowdfunding has mainly four common kinds used in the UAE: 

I. Donation-Based Crowdfunding: 

In this type, the donors give donations to any purpose or for start-up, without any expectation of cash return. Such crowdfunding is mainly used for charity purposes to help any person in a medical emergency or financially support any non-profit organization. Aflamnah is an example of a Donation-Based Crowdfunding platform, which raises funds for movies produced in the Arab region. 

II. Rewards-based Crowdfunding:

In which the funder funds in exchange for a reward in the future. The reward could be in the form of products manufactured by that start-up or any services they are supposed to offer for free to that funder in return for their financial support at the end of that fundraising campaign. Buckscapital is an example of this crowdfunding model in the UAE. 

III. Crowd-Sourced Equity Crowdfunding: 

Where an investor receives shares in the company in return for funding. In the future, the investors receive profit from the business in the form of shares and dividends in distribution. This sort of crowdfunding is very famous in the investor community just because of its equity funding model. Crowdcube is a UK-based equity crowdfunding platform, and Eureeca is operational in the MENA region. 

IV. Debt or peer-to-peer Lending: 

The lender gives loans to the borrower and expects him to return with a mutually agreed stipulated amount of interest on it or interest rate fixed by the crowdfunding platforms. Such crowdfunding platforms must get approval from the Central Bank of UAE to operate their platform because it regulates banking activities and loan granting activities. Under UAE Penal Code, it is prohibited for private individuals to lend interest-based loans according to Shariah Laws, which might create problems for plain vanilla debt-based crowdfunding platforms, so getting approval from the Central Bank can mitigate the risk of any illegality in the UAE. Beehive is one of the examples of the peer-to-peer crowdfunding model in Dubai. It is certified by the Shariah Review Bureau (SRB) to be Shariah-compliant. However, each model has its own pros and cons. They happen to be appealing to different levels and categories of people and investors. Similarly, the Donations and Rewards Crowdfunding models are famous amongst small enterprises, private individuals, non-profit entities, and the equity and peer-to-peer model is amongst investors and people financing start-ups and SMEs to accelerate the businesses.