Crowdfunding is becoming increasingly successful in both Europe and the US – but what about in developing countries?
It seems that Africa may be the next crowdfunding hotspot, where many platforms have sprung up in the last few years.
Africa has a clear market for investment in development projects and startup businesses. A large number of African crowdfunding sites are rewards based, meaning people pledge money towards projects they feel passionate about – often ones that will stimulate the economy and local area. These sites, such as Jumpstart, aim to decrease the involvement of international development organizations in funding start-ups, so that more of the funding comes from Africa itself. More recently, however, equity and debt based crowdfunding sites have begun to surface. Venture Capital for Africa, a debt-based model, focuses on companies with a valuation of less than £1m which have failed to meet targets for venture capital. Most of the sites are relatively new, founded in the last two or three years.
Patrick Schofield is the founder of Zimbabwean crowdfunding platform Thundafund, which is aimed at raising capital for social entrepreneurship. He believes that African sites are about the “democratisation of funding”; in less economically developed countries there are fewer opportunities for startups to gain investment, but through crowdfunding, the opportunities are equalised. Research has proved that crowdfunding as an idea has proved just as popular for investors in Africa as in developed markets. Some sites, such as Homestrings and Lelapafund, aim to capitalise on disapora and encourage Africans living abroad to invest in their home country. Their knowledge of the markets and understanding of their home country makes them the ideal investor.
The concept of raising money from the people around you is not a new one in Africa. There are many well-known groups that do a similar thing; for example, Susu collectors are one of the oldest financial groups in Africa. Based largely in Ghana they provide an informal means for Ghanaians to securely save and access their own money, and gain limited access to credit. Similarly, StokvelSA works by pooling together funds contributed by members and investing it in different investments activities for a set return. These forms of microfinance have always been popular, so it is perhaps unsurprising that Africa has taken to crowdfunding so well. However, online crowdfunding in this sense is entirely new and despite what Schofield calls its “somewhat subdued” success rate, it is ultimately taking off as a viable form of alternative investment in Africa.