Crowdfunding: Evolution and challenges

Crowdfunding helps Saudi SMEs raise SAR 317 million since 2019

Crowdfunding emerged as a modern financing tool enabling small and medium-sized enterprises (SMEs) and startups to raise capital by selling part of their founders’ equity, offering investors an opportunity to participate in ownership and diversify their portfolios.

Since the launch of Saudi Arabia’s first equity crowdfunding rounds in 2019, SMEs successfully raised over SAR 317 million through licensed platforms between Q1 2021 and Q2 2025.

Crowdfunding in Saudi Arabia has witnessed a sharp decline in recent years. Funding peaked at SAR 61.5 million in Q1 2022 before falling steeply from 2023 onward — dropping to mere hundreds of thousands of riyals in some quarters and even diving to zero in several consecutive periods. The market has since rebounded modestly, reaching around SAR 16.4 million in Q2 2025.

The following index illustrates changes in the volume of funds raised through crowdfunding platforms in the Saudi market.

Data from the Capital Market Authority (CMA) show that the number of companies licensed to operate crowdfunding platforms in Saudi Arabia peaked at nine in Q2 2022, before gradually declining to just one platform from the Q4 2023 through the second quarter of 2025.

The recent slowdown in Saudi Arabia’s crowdfunding market raised questions about the viability and future of such platforms — and whether earlier funds truly fueled business expansion and growth for beneficiary enterprises or rather resulted in investor losses and stalled projects.

Murad Maghrebi, Co-founder of Tahaluf Capital, currently the only licensed firm active in this segment, said the equity crowdfunding industry has undergone several regulatory phases since CMA launched its regulatory sandbox, facing multiple challenges throughout its evolution.

He explained that Tahaluf Capital was among the last fintech firms to receive CMA approval to pilot an equity crowdfunding service. However, as operations began, the company encountered significant obstacles — the most notable being the broad investor reluctance to engage with equity-based financing products.

Tahaluf conducted an in-depth analytical study to identify reasons behind the roughly 80% decline in funds raised through equity crowdfunding platforms in 2023 compared to 2022. Rising interest rates, which made debt-based products and debt instruments more attractive.

Based on this study, key findings are:

- Higher interest rates made investments in debt-financing products and dent instruments more attractive.

- Greater clarity of returns in debt products compared to the uncertainty of equity investments.

-Lower risks and clearer exit policies in debt-based financing.

- Flexible investment horizons in debt products, ranging from short to medium term, giving investors better liquidity control.

- Limited regulatory and corporate governance awareness among issuing startups, which affected the quality of initial offerings and discouraged reinvestment.

- A shift by most licensed crowdfunding firms from equity-based models toward debt crowdfunding or debt instrument offerings.

The Saudi market also features another model under the broader crowdfunding framework — debt crowdfunding — offered by several CMA-licensed platforms.

This model differs from equity crowdfunding in the nature of the relationship between investors and issuers.

Maghrebi explained that crowdfunding firms in Saudi Arabia have faced internal financing challenges alongside weaker demand from retail investors, who increasingly favor debt-based products offering clearer returns and higher liquidity.

Tahaluf developed a redeemable-shares equity crowdfunding model based on Article 108 of the new Companies Law and under its license from the CMA. The company designed a Sharia-compliant “Redeemable Preferred Shares” structure, combining equity rights with low-risk periodic returns. Development of the product began in May 2023, with an official launch scheduled for January 2025.

Discussing the regulatory landscape, Al-Maghrabi noted that despite progress led by the CMA, the equity crowdfunding sector continues to face structural challenges, including:

- High compliance and governance requirements for small and early-stage firms.

- Limited liquidity due to the absence of a trading market for unlisted company shares.

- The need for stronger technical integration with financial and banking institutions.

- Low investment awareness among some individual investors and issuers.

He added that while the market regulator plays a key supervisory and regulatory role, the current phase requires supportive initiatives to ensure the sector’s sustainability. These could include establishing an operational funding facility for licensed crowdfunding firms to overcome operational hurdles, and developing a secondary market for unlisted shares to improve liquidity. Strengthening partnerships with financial and banking institutions, he said, would also be a vital step toward expanding investment opportunities and enhancing the sector’s reach.