Digital Crowdfunding Has Huge Potential In Africa

Digital Crowdfunding Has Huge Potential In Africa

Digital crowdfunding has the potential to build African economies through creation of employment, in a continent where it accounted for less than 0.1 percent of the $34 billion raised globally last year.

Growing investor interest in crowdfunding platforms across Africa is quickly turning in to a legitimate and easier way of souring for startup capital on the continent, according to CrowdExpert.

Globally, crowdfunding has mainly been fueled by banks and other traditional credit facilitators who are reluctant to give provide loans to businesses that have not demonstrated success in past investments.

This is also a major challenge faced by young entrepreneurs in Africa.

Africa has more than 200 people aged between 15 and 24 years. They present a potentially rich market for information technology, a key feature of crowdfunding. In places with poor or no internet connectivity, most crowdfunding platforms use text messages to reach over 400 million mobile phone subscribers, according to Fisher Jones Greenwood Solicitors.

The crowd-based funding platform initially started off as donation-based in Africa. It has however risen over the years to become equity-based.

However, the concept has not yet spread to most African nations. In 2015, there were 57 active crowdfunding portals with headquarters on the continent, South Africa had 21 while Nigeria had seven, CNBC reported.

The two biggest economies on the continent accounted for more than half of the total portals, which shows a huge disparity with the rest of the continent.

Money raised through the platform was used to fund start-ups and Small Medium Enterprises (SMEs), real estate and social causes and charity.

In 2015, crowdfunding raised $ 32. 7 million in the East African nations of Kenya, Uganda, Rwanda and Tanzania, The East African reported.

In South Africa, it raised raised about $30.8 million, Egypt $842,000 and Nigeria $314, 445.

However, despite the immense opportunities, there are risks that should be addressed to improve the sector.

These include fraud, lack of due diligence, disclosure risks such as lack of liquidity and money laundering, Fa News reported. This is mainly because unlike banks and other traditional lenders, crowdfunding lacks measures to regulate these vices.

Crowdsourcing does not guarantee returns on investments and this raises the possibility of business failures.