CROWDFUNDING IN TANZANIA

CROWDFUNDING IN TANZANIA Introduction The Capital Markets and Securities (Investment Based Crowdfunding) Guidelines of 2023 (the Guidelines) are now in force. The Guidelines are applicable to Tanzania mainland and Tanzania Zanzibar in relation to all crowdfunding activities managed/implemented in Tanzania. The Guidelines regulate crowdfunding activities including equity and debt securities within the United Republic of Tanzania, providing consumer protection and public awareness of crowdfunding activities in line with best practice; widening the scope of alternative financing through diversification of alternative financing products and enhancement of the market liquidity; promoting financial inclusion by taking on-board segments of society previously excluded; and providing capacity building for start-ups and SMEs to raise funds through the capital market.

Example of Crowdfunding is REITI etc. Key Definitions “Crowdfunding” means the act of funding projects or ventures by raising money from a large number of people who each contribute funds through an electronic system. “Crowdfunding Operator” means a person licensed by the Capital Markets and Securities Authority (CMSA) to provide crowdfunding services in the Tanzania. REQUIREMENTS FOR LICENSING A CROWDFUNDING OPERATOR Application for a licence Anyone who wishes to conduct Crowdfunding in Tanzania must be a company limited by shares that is incorporated in Tanzania and must apply for and receive a license from the CMSA. The application for a license must be submitted in the format specified in the second schedule to the Guidelines, meet the requirements outlined in the first schedule, and include any additional information that CMSA may require.

Crowdfunding Operator Any correspondence between Crowdfunding and CMSA must be handled by a single, accountable person designated by Crowdfunding as an Operator and certified by CMSA. Additionally, this person’s position cannot remain unfilled for longer than 30 days. Crowdfunding shall be promoted to investors via publications, mailing lists, and short message services to prospective investors etc.

Responsibilities and duties of the Crowdfunding Operator The responsibilities of the said Operator shall be to carry out due diligence on prospective issuers planning to use its platform, monitor and ensure compliance with its rules, carry out investor education programs, ensure the issuer’s disclosure document lodged with the Crowdfunding Operator is verified for accuracy and made accessible to investors through the platform, management of all investment matter, risk management and compliance with the guidelines and other Regulatory Authorities requirements.

In accordance with the Guidelines, the Operator must keep accurate records, including a register of security holders, ensure proper handling of investor funds, suggest and enforce changes to address detected fraud, set up and oversee efficient conflict resolution procedures, and guarantee that any conflicts of interest relating to the Operator or other directors running the Crowdfunding are disclosed to CMSA. Additionally, the operator and directors' shareholding in any issuers hosted on the platform should not exceed twenty percent (20%).

OPERATIONS OF CROWDFUNDING OPERATOR Control of the Crowdfunding operation The Crowdfunding Operator’s board is a chief supervisor of the Crowdfunding Operator's duties ensuring that the Guideline is a key guiding instrument to the Crowdfunding dealings. The Guideline mandates the CMSA to issue terms, conditions, and directives to the Operator, the Board and Chief Executive to the Crowdfunding regarding compliance to the Guidelines, the conduct of Crowdfunding business, fees, restrictions, reporting systems to the CMSA including periodic reporting of compliances, audited financial statement reports, as well as notification on cessation or inability to meet objectives.

Restrictions in the operation of Crowdfunding The Operator is restricted under the Guidelines from providing any financial assistance to investors for investing in the platform, not allowing publicly listed companies, complex financial institutions, foreign companies, and companies that are likely not to be able to comply with the Guidelines and other Regulatory requirements to raise funds, equity or debts through a crowdfunding platform. Also the Operator should ensure that funds raising by investors does not exceed 150,000 USD per annum and investors do not use the platform to raise more than 300,000 USD.

Suspension and Revocation by the CMSA The CMSA has been empowered under the Guidelines to make inspections on the integrity of the Crowdfunding platforms, compliances of the Guidelines, AML/CFT, AMLPOC, and other relevant laws, soundness and stability of the Crowdfunding, risk management and general control of the Crowdfunding, and may suspend or revoke the license of a Crowdfunding Operator if the Crowdfunding fails to meet the requirements of the Guidelines, fails to comply with the directives of the CMSA or fails to pay fees as prescribed by CMSA.

GENERAL DISCLOSURE AND RESTRICTIONS  An issuer who intends to offer equity or debt on a Crowdfunding platform shall first obtain approval from CMSA by filing with the CMSA and providing the Crowdfunding Operator the offer document with detailed information of legal status and address, description of directors and their shareholding, description of business, prices, potential risks, duration of expiry of the offer, as well as a description of the ownership and capital structure of the issuer including terms of securities and right of shareholders.  Upon approval by the CMSA, the offer document should be published on the Crowdfunding platform and filed with BRELA.  The offer document should not be published without consent in writing of the Director of the issuer, or any person including auditors, legal advisors, and investments advisors whose statement is included in the offer document.  Securities purchased in a Crowdfunding transaction are not to be resold before the expiry of one year.  A company should not make a second offer for equity or debt at the time when its previous offer is open or suspended.  CMSA shall make a procedure to withdraw of Crowdfunding offer and a procedure to deal with a supplementary or defective offer.  The Guideline allows a Crowdfunding Operator to operate a facility for the transfer of Crowdfunded investment instruments originally offered on the

Crowdfund platform, and this shall be subject to transparent rules and fair trading, making accessible all information on the nature of the facility, fees applicable, as well as the performance of the investment available on the facility. SCHEDULES a) First schedule: Criteria for licensing b) Second schedule; Application form for Crowdfunding operator licence by a Company for Crowdfunding licence. Disclaimer The views expressed in this paper are those of the author only and should not be considered as an official interpretation, defamatory or interference of any legislation, laws or policies of any country including Tanzania. The contents of this paper should not under any circumstances be reproduced or used without our express written consent. It should not be considered as a legal advice to any of its recipient(s) and should not be relied upon without obtaining further legal advice.

We accept no liability for any loss occasioned or suffered due to the contents of this paper.