Crowdfunding platforms in Africa raised $32.3 million for various projects in 2015, data from the Afrikstart Crowdfunding in Africa report shows. But that figure could be much higher over the coming years if African governments develop regulation on crowdfunding.
Despite its rising popularity, the most common limitation of crowdfunding across most African countries is a lack of legal and regulatory framework. Nigerian start-ups were recently confronted with this reality when the country’s securities and exchange regulator insisted the country’s laws make no provisions for crowdfunding. The regulator there said the country’s financing laws had yet to catch up with new funding sources.
“The absence of regulation limits the expansion of equity-based or debt-based crowdfunding platforms in Africa,” the report states. The lack of regulation likely deters more investors from pooling money in platforms “in which they have no basic investors’ protection rights and clear exit strategies,” the report says.
The upside to fixing crowdfunding regulation in Africa will see access to finance, a pressing problem for businesses and entrepreneurs, democratized.
There is some irony in the idea that regulators could support an innovative platform given local regulators in many African countries have been extremely conservative and typically used regulation to smother innovation and innovators.
Despite the limitation an absence of regulation poses, with cost of access to internet dropping in parts of the continent and smartphone penetration deepening, more Africans are taking advantage of crowdfunding platforms to finance projects ranging from start-ups to social causes.
This is happening quicker in South Africa than anywhere else. Of the $32.3 million raised by crowdfunding platforms based in Africa, $30.8 million was raised by platforms in South Africa alone.
South Africa’s dominance in crowdfunding on the continent is not accidental. According to the report, the popularity of crowdfunding in South Africa is down to the country’s “sophisticated business market, a robust and reliable regulatory credit system and supervision.”
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