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03 August 2020
The emergence of new technologies has led to the creation of several alternative financing schemes and new investment options. One popular option that has been gaining traction is crowdfunding.
In March 2018 the Law to Regulate Financial Technology Institutions (the Fintech Law) came into force, regulating, among other things, crowdfunding platforms.
In order to operate, crowdfunding platforms must obtain authorisation to act as a collective financing institution. The National Banking and Securities Commission (CNBV) will grant such authorisation, with the previous agreement of the Inter-institutional Committee (comprising representatives of the CNBV, the Bank of Mexico and the Secretariat of Financing and Public Credit), to platforms which comply with all of the technical, operative and legal requirements established by the Fintech Law.
The Fintech Law recognises three types of crowdfunding activity or service:
In addition to being an excellent option for investors, crowdfunding has also been beneficial to entrepreneurs as this type of collective financing scheme is a faster and often cheaper way of obtaining the financial investment needed to commence a project.
Through a collective financing scheme, a company or project can borrow or raise up to 1.67 million investment units(1) (UDIS) (approximately $483,862) in equity or loans. However, special authorisation can be requested to increase this limit to 6.7 million UDIS (approximately $1,941,228.63).
Individuals who are not registered with the Tax Administration System as a person with business activity (peer-to-peer loans) can borrow up to 50,000 UDIS (approximately $14,485).
In any case, a singular business cannot obtain more than 7.37 million UDIS (approximately $2,135,089) through different crowdfunding services simultaneously.
In general, there are no restrictions as to who can be offered equity or raise money through crowdfunding mechanisms. In the same way, there are no restrictions on who can lend or borrow such mechanisms.
To date, crowdfunding has mainly been used for personal loans and real estate projects. However, there is no regulatory limitation on applying this alternative financing scheme to energy projects.
Due to the excessive exploitation of finite resources such as coal and oil, alternative sources of renewable energy are required to satisfy the high demand for energy. However, the creation and use of alternative sources of renewable energy (both solar and wind) require significant investment, which has become a major obstacle to the development, creation and implementation of various alternative energy solutions.
Against this background, crowdfunding platforms have become an excellent financing option because retail, qualified and institutional investors can provide the resources necessary to develop projects focused on generating alternative energy.
In Mexico, some crowdfunding platforms enable parties to invest in energy-related projects. For example, crowdfunding platform RedGirasol offers a financing alternative for the installation of solar panels. RedGirasol connects people and companies that want to acquire a solar panel system with investors who are willing to contribute money (generally between Ps100,000 and Ps300,000) to such scheme in exchange for immediate returns. While solar leasing currently incurs an interest rate of between 18% and 20% a year, projects like RedGirasol offer rates of between 10% and 14% a year.
RedGirasol is intended to be used as an investment instrument (with a good interest rate) or as a savings instrument (as the installation of solar panel systems in the home or workplace leads to cost savings in the medium and long term). In its almost three years of operation, RedGirasol has financed approximately 200 projects through more than 5,000 investors, generating a return of 15.70% a year.
Crowdfunding has spurred the implementation of various projects (including those relating to energy). In particular, it has positioned Mexico as a country with great potential to invest in and develop various energy projects through different alternative financing solutions.
For further information on this topic please contact José Antonio Casas Vessi, Sara Schoeneck Padilla or Diego A Ramos Castillo at Ramos, Ripoll & Schuster by telephone (+52 55 1518 0445) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Ramos, Ripoll & Schuster website can be accessed at www.rrs.com.mx.
(1) As at 24 July 2020, one unit of investment was worth Ps6.5 ($0.29) (source).
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