Can Crowdfunding Drive Innovation and Entrepreneurship in Africa?

Increasing Internet access and a boom in ICTs is giving rise to new crowdfunding platforms in Africa with transformational effect.

The African information and communication technology revolution

Over the next five years, the African economy is expected to grow faster than any other continent. One key factor: information and communication technology (ICTs), most notably, the mobile phone. Owned by around two thirds of the continent’s 1 billion citizens, in some African countries more people have access to a mobile phone than to clean water, a bank account, or electricity. The propensity has driven up demand for connectivity, and since 2008, Internet bandwidth has grown twentyfold.

The combination is transformational: opening up trade; creating new and larger markets for goods and services; creating access to apps such as government service and mobile banking platforms (e.g. M-Pesa and Monitise); and empowering individuals and communities to create home-grown solutions and local economic growth through entrepreneurship and innovation.

The potential of crowdfunding in Africa

The combination has also given rise to crowdfunding – the practice of financing a project or venture with small sums of money donated, loaned, or invested from a large pool of individuals – which is already helping to fill the $140-$160 billion gap in access to financing for African entrepreneurs and SMEs.

Research shows that the location of a project does not correlate with the success of fundraising, meaning tangible paths are opened up with potential investors across the world. The World Bank claims that crowdfunding is a crucial future source of innovation and job creation in developing countries.

Blocks to crowdfunding in Africa

Africa has been quick to seize the opportunity, perhaps inspired by the success of BRCK, an “internet back-up generator” offering reliable connectivity in places which suffer electricity blackouts, designed by Kenyan non-profit collective Ushahidi, and developed with $172,000 raised on Kickstarter.

But still in its beta phase, there are certain hindrances to crowdfunding’s success; and not just the issue of blackouts. Trust and credibility need to be built. An underdeveloped online payments ecosystem in a continent where many remain cash-based or have progressed to mobile-money must be worked around. A lack of social media take-up must be challenged – only 10% of Africans are active Facebook users compared with 90% in the rest of the world, but social media use is far more strongly correlated with successful crowdfunding launch than overall access to the Internet. And Africa’s inward-looking tendency for financing – a product of the tradition of community self-help, Harambee – must change, instead turning outwards to the rest of the world.

Crowdfunding platforms with ambitions of transforming Africa’s entrepreneurial scene

But there are already many African crowdfunding platforms tackling these problems in adapted ways.

Ghanaian SliceBiz combines funding from accredited angel investors with micro-investments from the wider community to give projects credibility. SliceBiz also partners with global impact investors to help start-ups achieve funding to scale-up across Africa. Investors can fund via mobile payments, bank accounts, or credit cards.

Nigerian Funda Solva uses PayPal – now prevalent across Nigeria – as the sole payment gateway. This opens up funding to the whole world, and taps into PayPal’s trustworthy reputation, building credibility for the site and each project. Funda Solva also accepts contributions as small as N160 ($1).

US-based JumpStart Africa also claims to have solved the payment barrier, allowing entrepreneurs to receive funding on a co-branded Visa or Master Card gift card which is then shipped to them. JumpStart also requires that project owners verify their identity in portraits of themselves holding their ID along with a copy of a code they get sent on registration, and teams verify projects via e.g. local press. A little rustic, but more than a platform like Kickstarter does.

Kenyan M-Changa taps into Africa’s key ICT trend to gain reach in the unique African environment with a platform specifically for mobile. It allows users to create campaigns, cheaply collect donations, and promote projects via SMS or mobile payments, and allows diaspora contributors a transparent and cheap method of giving funds.

A mobile application is also on its way for South African Thundafund, a social entrepreneurship platform that hopes to create 15,000 jobs. Thundafund supports its entrepreneurs, allows only financially viable ideas to go live on the site – of the 1,400 projects submitted, only a little over 10% have been successful -, guides them through funding, and then works to get the best out of each idea. Since launch, 4.3 million rand ($348,785) has been raised on the platform, successfully funding 116 of 150 projects.

In France, LelapaFund facilitates the African diaspora to invest their capital and skills back home. Co-founder Elizabeth Howard says it is viewed by investors as a cost-efficient and less risky way of getting involved in African projects.

And similarly Homestrings, which originally targeted only the African diaspora but has since opened up to anyone with over $1,000 to invest in emerging markets, provides vetted opportunities in projects in 13 African counties. It has raised around $25 million for projects since launch in 2011.

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