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CROWDFUNDING IN COLOMBIA

Recently, the Government of Colombia regulated through Decree 1357 of 2018, the activity of “Crowdfunding” (Collaborative Financing) establishing the regulatory framework in which entities authorized by the Financial Superintendence may offer their services to serve as an intermediary between those who request resources, with those contributors who are willing to finance them.

Crowdfunding consists of the person seeking financing making a public announcement of his or her need for financing, informing the business or destination of the resource. At the other end of the operation, financing may come from third parties who may or may not be part of the financial system and who sympathize with the cause and/or seek a benefit or return offered by the borrower.
This allows Colombian companies to have another source of financing other than the traditional ones (banking services, issuance of shares, securitization, among others), which greatly increases the chances that Colombian entrepreneurs or disruptive initiatives of existing companies will have greater access to financial services and therefore the lack of resources and working capital will not be a limitation or excuse for not undertaking or developing new projects.

Requirements established by the decree for companies wishing to develop Crowdfunding activities:

  1. The entities that intend to develop these activities must be corporations that comply with the requirements established in Article 53 of the Organic Statute of the Colombian Financial System.
  2. These companies must be registered in the National Registry of Securities Market Agents (Registro Nacional de Agentes del Mercado de Valores – RNAMV).
  3. Adopt measures to ensure the continuity of the collaborative financing activity.
  4. To have adequate administrative and accounting procedures, internal control mechanisms, effective risk management and control techniques, and safeguards for its information systems, among others.
  5. Issue operating regulations for its activities approved by the Superintendency of Finance.
  6. To have a system or procedure to classify productive projects, in order to facilitate the decision making process of the contributors.
  7. Establish mechanisms so that individuals are not funded above a maximum ceiling and as requested.
  8. To advance ordinary procedures in matters of knowledge of the client and money laundering risk management.
  9. To maintain absolute confidentiality of the contributors.

It should be noted that although these entities must be registered in the RNAMV and that crowdfunding will be carried out through the issuance of securities, these do not constitute a public offering of securities and therefore do not require registration in the RNAMV.
An important aspect of Crowdfunding is the impact it has had on other economies such as the United States and Europe, which has achieved an absolute change in the business dynamics, also in terms of transactional volume, in these countries it has been recorded that the number of projects financed by Crowdfunding has increased by about 50% per year. This new dynamic has favored the emergence of new dolphins in the world market and the consolidation of large-scale technological developments.
Particularly striking about Crowdfunding is that, if we divide the projects by categories, we see that a large part of the projects and funding is granted to projects with a social connotation.

Source: https://www.inc.com/laura-montini/the-rapid-rise-of-crowdfunding.html
We hope that with the implementation of this decree and regulation of collaborative financing, more and more entities willing to connect applicants with contributors will be created, so that the Colombian financial services market will expand, generating greater competitive pressure for the banking system and similar entities, which will have the effect of lowering interest rates and the cost of working capital for Colombian companies will be increasingly lower, which will contribute to the development and dynamization of our economy.
 
By: Juan Esteban Vallejo

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