How E.Africa Can Improve Crowdfunding for Startups

In Startup, Success

East Africa is emerging as a hub for crowdfunding. However, there are no specific policies governing crowdfunding in East or South Africa, according to a new report published by the Financial Sector Deepening Africa (FSD Africa) in partnership with the Cambridge Centre for Alternative Finance (CCAF) and Anjarwalla & Khanna (A&K).

The report was conducted to assess the existing and evolving regulatory and policy landscape for crowdfunding in East Africa.

According to the report, in developing and emerging markets, an estimated $430 million was provided to SMEs, individual consumers and various organisations via online crowdfunding channels in 2015.

Largest alternative finance

In Africa alone, over $250 million was raised via various alternative finance channels in the period 2013-15, and East Africa was the largest alternative finance regional market across Africa in this same period.

However, such channels require careful and considerate attention from financial regulators in East Africa to catalyse and harness their potential positive economic and societal benefits whilst addressing systemic and consumer risks and challenges.

Commenting on the report, Joe Huxley, the Regional Strategies Coordinator at FSD Africa says: “The East African crowdfunding market is nascent, but shows signs of growth.  Creating the right rules and incentive structures to ensure this growth is carefully managed, and produces positive development gains for East Africans, is a key task. Good work is already underway. Together with its partners, FSDA will stand ready to support leading East African regulators at each step of this journey.”

The report titled, “Crowdfunding in East Africa: Regulation and Policy for Market Development” highlights key priority regulatory and policy areas that are essential for market development in Kenya, Uganda, Rwanda and Tanzania while drawing on insights and experiences from the UK, USA, Malaysia, New Zealand and India.

Some of the key findings include; non-financial return-based crowdfunding models dominate market activity in East Africa while financial return-based loan and equity models are only in the very earliest stages. Debt- and equity-based models dominate total global activity, and account for the majority of market activity in more established markets, while donation- and rewards account for a small percentage of total market activity.

Kieran Garvey, the Policy Programme Manager at the Cambridge Centre for Alternative Finance, Cambridge Judge Business School says: “One of the most interesting findings emerging from this study is that while no specific regulations currently govern different types of crowdfunding in East Africa, there are rules and regulations that are still relevant to crowdfunding platforms – particularly for equity and debt-based alternative funding models. We hope this report raises awareness of these existing relevant regulations in East Africa. At the same time, this report highlights some of the common themes and insights emerging from other countries, outside Africa, in terms of how financial regulators are responding to the growth and development of various crowdfunding and alternative forms of finance. Our team look forward to working with East African regulators to build upon the outlined recommendations.”

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The report proposes a three-phased set of policy and regulatory recommendations to encourage the growth and development of crowdfunding models in East Africa. They include; developing a living database of all, existing, regulator-acknowledged platforms in East Africa, supporting regulator engagement opportunities, developing a regional regulatory laboratory to guide crowdfunding businesses through the relevant regulatory processes and requirements as well as encouraging the East African crowdfunding platforms to build a regionally-focused industry association to undertake self-regulation and institute guidelines and principles to foster innovation while protecting investors.

 

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