Crowdfunding is a method of raising monetary contributions, typically online, from a large number of individuals, family, friends, customers, individual investors amongst others to fund a venture or project.
Typically, three key agents are involved in crowdfunding:
- (i) the crowdfunding platforms;
- (ii) the donors; and
- (iii) the campaign owners.
The crowdfunding platform is the site on which the campaign is created and the transaction takes place, the donor contributes funds, and the campaign owner receives the funds.
There are four different crowdfunding models. Donation-based (without rewards), reward -based (donors are offered tangible but non-financial rewards or products by campaign owners in exchange for their money), lending model (donors lend money to individuals, businesses or companies in third world countries. The donors usually receive their money back with interest), equity model (donors contribute funds to a private company in return for shares in the company or shares in the company’s profit or voting rights). This form of crowdfunding is illegal in Nigeria. Crowdfunding campaign categories vary from medical expenses, school fees, travel, wedding expenses, business funding, creative projects, political campaigns and much more.
Crowdfunding has grown exponentially worldwide but it is still in a relatively nascent phase in Africa. Africa experiences a slow adoption of online fundraising and financial contributions to African crowdfunding platforms account for less than 0.1% of the global crowdfunding market.
Its expansion as an alternative online funding option is hindered by: low Internet penetration, lack of awareness about crowdfunding among the general public, low social media usage, no legal and regulatory frameworks that define the crowdfunding rules in any African country and limited funds transfer and payments options in most African countries.
In spite of these challenges,the prospects of the African crowdfunding market are bright. The world bank noted that crowdfunding has the potential to create 2.5 billion dollars of investment a year in Africa alone by 2025. Today, crowdfunding is an acceptable source of alternative start-up funding. Entrepreneurs across Africa are now raising capital by crowdfunding and Africa has established many active locally appropriate crowdfunding platforms which collectively raised $32.3 million in 2015.
South Africa has a more mature crowdfunding ecosystem with more home-grown platforms than other African countries although it trails behind Kenya in donations received. Backabuddy platform in South Africa has raised over 100 million Rands from more than 125800 donors. Other African countries are also active in the crowdfunding ecosystem with home-grown platforms like Naijafund in Nigeria, Yomken in Egypt, M-Changa in Kenya,Thundafund in South Africa, Farmableme in Ghana and Akabbo in Uganda.
Crowdfunding is now a major vector of African self-empowerment. Through crowdfunding, Africans have the power to fund projects and causes they care about and drive their own economic agenda.