The legal basis of the debt-based crowdfunding model was introduced by the amendments to the Capital Markets Law (“CML”) within the scope of Law No. 7222, which entered into force on 25 February 2020. In this context, it was regulated that the banking regulation would not apply to debt-based crowdfunding activities and the Capital Markets Board of Turkey (the “CMB”) was tasked to oversee such activities. Following this, a secondary regulation on debt-based crowdfunding was expected. As per the Crowdfunding Communiqué numbered III-35/A.2, which was published in the Official Gazette dated 27 October 2021 and entered into force on the same day (the “Communiqué”), the CMB regulated (i) the details of the procedures and principles on debt-based crowdfunding and (ii) debt-based and equity crowdfunding under one single communiqué. Thus, the Communiqué on Equity Crowdfunding numbered III-35/A.1 was abrogated (“Abolished Communiqué”).

The Communiqué introduces the principles governing debt-based crowdfunding for the first time and amends certain provisions on equity crowdfunding and platforms.

Who does it concern?

New rules introduced by the Communiqué mainly have impact on the following groups: 

• Real persons and limited liability/joint stock companies residing in Turkey who seek for funding for their projects through equity or debt-based crowdfunding (“Fundraisers”);
• Platforms, participation banks and widely authorized intermediary institutions to mediate crowdfunding
• İstanbul Takas ve Saklama Bankası A.Ş. blocking the funds collected through the platforms as an escrow agent (“Takasbank”) and other portfolio custodians.
• Investors aiming to earn interest in return for debt instruments or to earn dividends by acquiring shares from fundraiser companies.

What are the requirements for platforms?

Pursuant to the Communiqué, the requirements for platforms to mediate crowdfunding activities were regulated under two set of conditions: (i) conditions for establishment and (ii) conditions for licensing. Platforms must apply to be licensed within 6 months upon receipt of the permission of the CMB for establishment. Platforms failing to make such application will lose the right to be included in the list as a licensed platform. Moreover, platforms that do not to start operating within 6 months upon being licensed will be removed from the list ex officio by the CMB.

Platforms must meet certain criteria for the approval of establishment such as obligation to have a minimum share capital and certain qualifications for the founders. Except for those listed under the conditions for establishment, the conditions for licensing are in line with the regulations of the Abolished Communiqué.

How much can be invested?

As per the Communiqué, investment limits for equity crowdfunding were increased. In this context, real persons who are not qualified investors will be able to invest a maximum of TRY 50,000 instead of TRY 20,000 in a calendar year. Such limit may be applied as 10% of the annual income of the relevant investor, provided that the investment does not exceed TRY 200,000.

On the other hand, real persons who are not qualified investors, will be able to invest:

• A maximum of TRY 50,000 or 10% of their annual income provided that the investment does not exceed TRY 200,000; and
• A maximum of TRY 20,000 into a single project through debt-based crowdfunding.

Qualified investors are exempt from the above limitations for crowdfunding investments.

What are the basic principles and limitations on fundraising?

In accordance with the debt-based crowdfunding rules under the Communiqué, funds can only be collected in return for the sale of a debt instrument. Apart from this, any crowdfunding activity through a debt or loan agreement or any other agreement creating a debt-credit relationship was prohibited. All funds collected from investors in return for debt instruments must be paid in cash.

Similar to the equity crowdfunding, the reports prepared by Fundraiser or Fundraiser Company regarding the projects are evaluated by the investment committee created by the platform. Interest, maturity and payment conditions of the debt-instrument to be issued are determined by the investment committee and the Fundraiser and are explicitly stated in the information memorandum together with other rights and obligations regarding the relevant debt-instrument.

The Communiqué includes provisions on the interest amounts of debt instruments as well. Accordingly, the interest rate cannot exceed 50% of the weighted average of two government bonds with the closest maturity dates to the relevant debt instrument, one of which has a maturity shorter than the relevant debt instrument, and one of which has a maturity longer than the relevant debt instrument. On the other hand, debt instruments cannot be issued with a maturity of more than 5 years.

In debt-based crowdfunding, repayment obligations can be given as shares of the Funded Company or otherwise, provided that it is explicitly determined in the information memorandum.

Another limitation under the Communiqué is concerning transfer of shares: those having a significant impact in the Funded Company, who were shareholders at the beginning date of the campaign started by Fundraisers, cannot transfer their shares until the date where all the debts arising from the debt instruments are redeemed.

How can you use the funds?

The report on the use of funds is published on the campaign page at the beginning of the campaign. Pursuant to the Communiqué, the fund raised from the project will be used primarily for payments to investors. Fund proceeds cannot be used for the performance of debts arising from other projects or other debts. That being said, fundraising to meet the working capital needs arising from the project is allowed.

Who can raise funds?

Within the scope of the Communiqué, the conditions set forth for companies to raise funds through equity crowdfunding will also apply to companies to raise funds through debt-based crowdfunding. In this context, only companies that are engaged in technology or production activities can raise funds through debt-based crowdfunding.