SEBI issues consultation paper on crowdfunding

MUMBAI (Reuters) - The Securities and Exchange Board of India (SEBI) on Tuesday issued a consultation paper on proposed rules on crowdfunding aimed at allowing start-ups in India to raise funds from the general public over the Internet.

Crowdfunding allows individuals and small businesses to raise money from pools of investors who can put money into peer-to-peer lending schemes or securities such as unlisted shares.

Regulators globally have begun devising rules to oversee the nascent platform, which has exploded in popularity as an alternative way for entrepreneurs to raise capital.

The U.S. Securities and Exchange Commission (SEC) issued draft rules for crowdfunding last October, and similar rules by Canadian regulators were issued earlier this year.

Consultation papers in India are usually the first step before draft regulations are issued, followed by the actual rules. However the process can take years and not every public consultation results in new rules.

The SEBI has asked for public comments on this paper by July 16.

The proposed rules would allow companies to raise as much as 100 million rupees ($1.68 million) in a year through crowdfunding platforms while limiting the maximum number of individual investors in an issue to 200.

The rules would also make it mandatory for institutional investors to buy at least 5 percent of a crowdfunded issue, while limiting maximum investment by an individual to 60,000 rupees per issue.

Companies funded through such ventures would be required to make periodic disclosures to its investors, though the disclosure requirements would be much less stringent than those for publicly listed companies.

($1 = 59.7000 Indian Rupees)

(Reporting by Himank Sharma; Editing by Sonya Hepinstall)