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Abu Dhabi, UAEFriday 14 December 2018

ADGM sets out regulatory framework for private financing

Financial center trying to help narrow SME funding gap

ADGM's proposed new Private Financing Platforms framework is geared towards providing more funding solutions for start-ups and SMEs. Courtesy Mubadala
ADGM's proposed new Private Financing Platforms framework is geared towards providing more funding solutions for start-ups and SMEs. Courtesy Mubadala

The financial regulator of Abu Dhabi Global Market, the capital’s financial free zone, set out on Sunday a proposed framework for operators of private financing platforms (PFPs), in a bid to help narrow the funding gap for start-ups and small and medium sized enterprises.

"Private enterprises, including start-ups and small and medium sized enterprises are key engines of economic growth and diversification in the region, but they are an underserved segment in terms of financing needs," ADGM’s Financial Services Regulatory Authority (FSRA) said in a statement.

"The FSRA therefore considers it important to develop alternative financing solutions for them to bridge the commercial funding gap and ease cash-flow issues."

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The main feature of the proposed PFP regulatory framework, outlined by the regulator in a discussion paper, is the creation of ‘Operating a Private Financing Platform’ as a new regulated activity within the free zone. The paper proposes that loans or investments may be held by lenders of investors either directly, or indirectly through a range of special purpose vehicles.

The FSRA envisages that PFP investments will be overwhelmingly carried out by ‘professional clients’ given the riskier nature of such transactions, but it may allow PFP operators to serve retail clients, on an exceptional basis, if the operator puts in place relevant safeguards.

The International Financing Corporation estimated in 2013 that the SME funding gap in the Middle East and North Africa was around $260 billion, with small and young businesses often struggling to attract financing.

The discussion paper outlining the proposed PFP regulatory framework is available on ADGM's website, with interested parties having until April 10 to submit comments.