Sutergy provides advisory services to individuals and (start-up) companies seeking to fund their projects or expansion through Crowdfunding (CF) and is working with other players in the Nigerian market to promote policies which will enable the growth of CF, especially as a start-up and Micro Small and Medium Enterprises (MSME) finance alternative in Nigeria.
Crowdfunding (CF) is the sourcing for external financing from a large audience of mostly unsophisticated participants (the crowd), instead of the traditional process of soliciting a small group of sophisticated investors or creditors. This is mostly done through Internet-based, Web 2.0 platforms (So called Crowdfunding Platforms (CFPs)).
Whilst there is a tendency to refer to crowdfunding as micro-financing it should be observed that they are different since micro-financing is predominantly a bank exercise and the bank is the sole provider of the loan and bears the risk of the loan.
CF has grown into a valuable alternative for funding new companies in Europe and the USA and some portals have been developed focused on African and Nigerian markets.
The crowdfunding market grew by about 167% and reached a noteworthy $16.2 Billion in sourced funds in 2014 according to a research report from Massolution in 2015.
Examples of expected benefits from CF include, amongst others, a lower cost of capital, increased flows of credit to MSMEs and cost efficiency. The risks of a crowdfunding proposal should however not be ignored, and this forms a key component of our consultancy process.
The different forms of crowdfunding are community CF (donation and reward forms), or financial reward seeking (peer-to-peer lending and equity forms of) CF.
Key constraints to domesticating CF and CFPs in Nigeria as in many other African countries are the existing securities laws which restrict the participation of crowds in equity investment outside of traditional brick and mortar (registered) financial institutions.
A challenge for start-up CFPs wishing to act as full non-bank intermediaries for the financial flows in crowd-investing on their platforms is the prohibition of unlicensed financial institutions, e.g. in Nigeria through Part II of the Banks and other Financial Institutions Act (BOFIA)(Central Bank of Nigeria, 2010).
Changes in the securities laws heralded in by securities policy changes like the JOBs Act in the USA are critical for a clarification and enabled the growth of CF as an alternative means of finance in the USA. This should also serve as examples for African countries.
It’s not all risk and challenges; opportunities abound:
Enabling trends supporting the spread include amongst others:
- Payment and technology platforms for crowdfunding contributions
- Emergence of technologies supporting Mobile money transfers, agent banking, remittances and remittance service providers (RSP)
- Emerging policies supporting the use of mobile money transfer services and mobile money transfer for remittances
Collaboration for Promotion of Crowdfunding in Nigeria:
Sutergy is working on two key areas of promoting crowdfunding in collaboration with interested parties to:
- Seek changes in the securities laws and policies which will enable the growth of crowdfunding in Nigeria with adequate security and risk management tools to protect the investors and participants in the market from the inherent risks of CF based business models.
- Promoting Crowdfunding based business models as a basis for financing renewable energy projects in Nigeria (and Africa).
African Crowdfunding Market Monitor
The Nigerian Securities and Exchange Commission (SEC) admits that policy changes are required for Crowdfunding to be domesticated in Nigeria.
This confirms the results of Nigerian market policy research conducted by Sutergy in 2015 in connection with the promotion of crowdfunding for off-grid sustainable energy projects in Nigeria. (15.8.2016)
See full article here
Global Crowdfunding Watch
EU: Simpler and cheaper prospectuses to open SMEs’ access to finance
See full EU press release here