A challenge for developing countries considering issuance of bonds (including diaspora bonds) is costly and onerous SEC registration requirements in the U.S. and Europe. The Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act (CROWDFUND Act) passed by the U.S. Senate on March 22 could potentially make the regulatory process simpler for some small-scale financing for small and medium enterprises (SMEs) in developing country.
The bill is intended to aid “crowdfunding” – raising capital, online or otherwise, from small contributions from large groups of people – and has the following features:
- Issuers can raise up to $1 million per year without registering the issuance with SEC.
- Individuals can invest 5-10% of annual income depending on their level of income.
- The issuance has to be done either through a funding portal or through an intermediary that is a registered broker. SEC also needs to be informed of the offering and provided certain details.
- State will still have jurisdiction over fraud or unlawful conduct of issuers and intermediaries.
This bill is the amended version of Entrepreneur Access to Capital Act (EAC Act) passed by the U.S. House of Representatives on Nov. 3, 2011. According to U.S. laws, this bill will now go back to the House for re-approval since the House version was amended by the Senate. The implementation details of the final bill may be slightly different from what is mentioned above. But the bill has exciting prospects for issuance of diaspora bonds in the U.S., which is the largest destination of migrants. The $1 million threshold of issuances in this bill may seem restrictive. But it could enormously help SMEs in the US and perhaps overseas, although at an added cost.