Kick-start funding to get easier
New financial markets legislation could lead to more companies growing to an adequate size to list on the New Zealand stock exchange, the Financial Markets Authority says.
The Financial Markets Conduct Bill comes into effect next year.
It introduces six new types of licences including for intermediary service providers of crowd funding and peer-to-peer lending platforms in April.
Crowd funding platforms bring together firms that want to raise small amounts of equity with a large number of investors who have small amounts to invests, and peer-to-peer (P2P) lending brings together people who want to borrow and those who want to lend only small amounts.
In both cases, it is common for money to be sought and invested through online platforms, which act as intermediaries and in the case of P2P lending run credit checks and collect repayments.
FMA head of strategy, innovation and engagement Sue Brown said the new framework had potential to create an environment where a wide range of companies could access capital markets at an appropriate cost level.
She expected more small and medium-sized businesses to grow by using capital raised through P2P lending and crowd funding.
Eventually more businesses would grow to a size and level of confidence to list on the new stepping stone markets and ultimately on NZX's main board, Brown said.
The FMA said it had had conversations with "a few" service providers who were looking to licence as P2P or crowd funding intermediaries.
John Walley, chief executive of the New Zealand Manufacturers and Exporters Association and director of online P2P lending platform Lendit, is planning to licence Lendit under the new legislation.
He said P2P lending platform Nexx had also been looking at licensing as an intermediary service provider.
Other online platforms which have sprung up to facilitate crowd funding include PledgeMe, Boosted and GiveALittle.
Steve Graham, director of open innovation platform HunchBuzz, said crowd sourcing was already popular and working successfully in several countries.
Crowd funding platforms like Kickstarter from the United States had taken off with start-ups and small businesses raising funding via an online platform.
Kickstarter claimed 4.8 million people had pledged US$796 million, funding 48,000 creative projects since its launch in 2009.
Walley said the legislation was catching up with what was happening elsewhere.
Restrictions on lenders and borrowers had been too tough, which made it hard for people to engage with each other to source funding, he said.
There still needed to be restrictions to avoid it becoming the "wild west", Walley said.
The legislation would limit the size of P2P and crowd-funding loans to $50,000, while limiting the amount a person could lend to $10,000 a year to mitigate risk.
NZX chief executive Tim Bennett said the new legislation created a "long-term pipeline" for the sharemarket as New Zealand had about half of the listed companies it should have for its size and economic condition.
With a strong economy and people saving more money there was a demand for more investment opportunities. However, the wider spread of P2P lending and crowd sourcing was unlikely to lead to significant growth in companies and public listings in the short-term, Bennett said.
- © Fairfax NZ News