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Crowdfunding – Moldovan Regulations on Participatory Financing

Crowdfunding – Moldovan Regulations on Participatory Financing

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During the COVID-19 pandemic, one of the biggest challenges for Moldovan SMEs proved to be access to financing solutions. A financial gap spread nationally across different sectors and industries.  Moldovan banking institutions became reluctant to finance SMEs and sole entrepreneurs, while the existing solutions often proved to be expensive and inaccessible.

The business, especially the small business, is in high demand of alternative financing solutions. The existing options, mainly limited to contributions from the founders and financing through traditional financing instruments offered by banks and non-banking lending organizations, are not appropriate.

Worldwide, the need for alternative methods of financing, the development of IT, and social networks have led to the emergence and development of unconventional financing instruments, one of them being crowdfunding. The interest in participating in alternative financing has been noticed on both sides – the business and the investors. Nevertheless, in Moldova, it was not possible due to the absence of an adequate legislative framework.

Back in 2016, the Law on SMEs No. 179 introduced in premiere the definition of crowdfunding. However, it lacked vision and sufficient detail. The presented concept covered only the reward-based crowdfunding services, where an investor can pay for a service/ product in advance without expecting other financial benefits (interest, shares, equity, or dividends) in exchange for the investment.

Crowdfunding services such as loan-based and investment-based crowdfunding were not regulated and remained out of the law.

Acknowledging the importance of alternative financing solutions, a Draft Law on Crowdfunding No. 150/MEI/2021 was developed and proposed to the Moldovan Parliament for adoption. The draft law was elaborated in line with the standards of the EU Regulation 2020/1503 on European crowdfunding service providers for business.

Once adopted, the incorporation and authorization of crowdfunding services providers and the creation of crowdfunding platforms in the Republic of Moldova will be possible. The business will have the opportunity to attract funding or accumulate investments of up to EUR 1 million for their projects through crowdfunding platforms. The investments will be able to be collected from a multitude of investors – both national and foreign.

Among others, the new draft law was designed to address some of the current concerns that severely affected the trust of the local investors that lost their life savings caused by a wave of Ponzi schemes back in the 90s. 

The draft law envisages a more robust investor protection mechanism. It introduces authorization and supervision procedures and establishes clear rules on the conditions of the crowdfunding activity, the participants in the crowdfunding process, applicable principles, and other related matters.

The draft law requires the investor to permanently have prudential guarantees of at least MDL 500,000 (approximately EUR 25,000). The suppliers may not promise investors the success of their projects, any profits, or recovery of investments. Also, the suppliers have a due diligence obligation to verify the projects proposed by developers and adequately inform investors of their findings. Moreover, the suppliers shall always keep the investors informed about the investment risks, including the risk of losing their entire investment.

Under the draft law, the operation of the crowdfunding mechanism, including the execution of the agreements and all transaction-related documents, will have to take place electronically and remotely, provided secure means of identification are used. All payments within the crowdfunding process will occur exclusively by bank transfers or alternative payment instruments offered by payment providers.

Nonetheless, only two types of crowdfunding are envisaged by the draft law: (i) peer-to-peer consumer lending or peer-to-peer business lending (crowdlending), and (ii) investment-based crowdfunding.  Other forms of crowdfunding remained unregulated, unfortunately.

The pandemic crisis showed us all that the business needs more flexible and affordable financing instruments. The initiative to design and implement an adequate regulatory framework for crowdfunding is an excellent response by the Moldovan authorities. By receiving the necessary boost to their cash flow, smaller businesses will have the opportunity to develop further or launch new projects, from which the entire domestic economy will benefit.

By Marina Zanoga, Head of Banking & Finance, and Nicolina Turcan, Associate, ACI Partners

This Article was originally published in Issue 8.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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ACI Partners is a leading law firm in Moldova with an expanding network of partners throughout Europe. ACI Partners was established in 2006 and since then has managed to build a very strong and competitive legal practice. Our business strategy strives to deliver a solid and reliable service, going beyond merely grasping the law, which the clients may turn to whenever they need. In reaching this goal, ACI Partners employs a personalized approach to each client, showing a genuine respect for their values and unqualified commitment to their interests and needs, steadily investing in knowledge and data management and ensuring a working environment consistent with our clients’ quality demands and high expectations.

ACI Partners is a one-stop shop law firm proficient in all possible legal matters a business might come across in Moldova, starting with incorporation of a business, and obtaining of all the necessary regulatory permits, continuing with various daily matters, such as contracts, labor, and migration, and finishing with dispute settlement, insolvencies, and criminal investigations. But we pride ourselves especially for our unmatched expertise in most innovative and complex areas for Moldova, as Modern Financial Products, Data Protection, Renewable Energy, Competition, Clinical Studies, Public Procurement, and Regulatory. In our work, we always involve a team of professionals with the relevant skill-mix, which enables us to provide our clients with an integrated and comprehensive advice, superior to our competitors.

ACI Partners has advised the Government of the Republic of Moldova, businesses, international organizations, and other institutions on most challenging transactions, assignments and projects.

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