Will Thailand’s equity crowdfunding regulation create investment?
Thailand, with its economy based on SMEs, makes a natural fit for crowdfunding. Crowdfunding is slowly gathering pace in Thailand, with platforms offering primarily reward and donation options. In an attempt to stimulate growth among start ups, SMEs and its nascent Fintech industry Thailand’s Security and Exchange Commission (SEC) published equity crowdfunding regulations in May 2015. Fintech businesses which involve financial payments and loans will be under the Bank of Thailand’s jurisdiction.
The regulations have focussed on obtaining market acceptance and promoting investor protection. Retail investors have stringent limits surround investment: they may only invest Bt 50,000 (1420 USD) per start up and no more than Bt 500,000 (14,200 USD) per year.
Paralee Sukonthaman, SEC Assistant Secretary General, highlighted the investment risk in equity crowdfunding:
“investors in equity crowdfunding have to understand that businesses that raised funds via the crowdfunding platforms do have high survival risk where studies abroad shows that only around 20-30% of startups via crowdfunding have becomes successful. Investors do have a risk of not getting their investment money back. However if the business that they have supported become a success then studies show the financial return is usually very good.”
A very limited class of qualified investors are able to invest unlimited amounts into start ups. A qualified investor must have been investing in stocks for at least one year and
- have a net value of at least Bt 50,000,000 (1,420,000 USD), excluding real estate, or
- have an annual income of at least Bt 4,000,000 (113,570 USD), or
- alternatively they must have at least three years of knowledge and expertise in business in a role such as a financial advisor, analyst, director or executive and have at least Bt 5,000,000 (142,000 USD) invested in stocks.
Tony Boontanorm, founder of Thailand crowdfunding platform Meefund, understands the need for such restrictions, stating “Thailand is full of scams and under the table industries, and equity crowdfunding will allow for scams and money laundering to happen.” However he believes the answer is not restricting investors, but rather having better monitoring.
Start ups wishing to crowdfund also face limitations. Any start up wishing to equity crowdfund must be incorporated under Thai law. Further it cannot raise more than Bt 20 million (570,000 USD) within the first 12 months, and not more than Bt 40 million (1.14 million USD) total.
The restrictive regulations in Thailand are similar to Malaysia. Like Thailand, the Malaysian Securities Commission has adopted strict regulation to develop its nascent online investing culture. Malaysia allows individuals to invest 1150USD per start up, with an investment limit of 11,500USD per year. There is no exception for qualified investors. Likewise, firms can raise up to 1.15million USD, depending on their size.
Only Thai businesses, or those joint ventures that are at least 51% Thai owned, may equity crowdfund under the regulations. Mr Boontanorm is of the opinion this constraint will limit growth as it is harder for foreign companies to access start up funding. Further, relaxing cross border money movements is essential to allow increased capital to flow into ventures. Crowdfunding is decentralised by nature and does not heed to traditional boundaries. Crowdfunding has the ability to coordinate investment from all over the world towards a venture; regulation must allow this to happen.
Strict regulations illustrates the SEC are focussing on market acceptance and investor protection, suiting Thailand’s emerging retail investment scene. It differs greatly from liberal legislation in established markets like New Zealand where there is a greater focus on market participation.
Future regulatory change should reflect the increasing maturity of crowdfunding in Thailand. Changes to cross border money movements, retail investor caps and increased education and monitoring will allow equity crowdfunding to flourish in Thailand. The current restrictions may hamper Thailand’s self proclaimed “Investment Year”.