CROWD­FUND­ING THE CARIBBEAN

Crowd­fund­ing helps Caribbean SMEs, by­pass­ing ob­sta­cles to tra­di­tional fi­nanc­ing

The Star (St. Lucia) - Business Week - - FRONT PAGE - BY CATHERINE MOR­RIS, STAR BUSINESSWEEK CORRESPONDENT

Fi­nanc­ing is of­ten the first hur­dle for small busi­nesses in the Caribbean. Many of the re­gion’s SMEs fail to make it to mar­ket be­cause they can’t ac­cess the nec­es­sary funds to de­velop their prod­ucts. This has led savvy en­trepreneurs to turn to al­ter­na­tive means of fi­nan­cial sup­port such as crowd­fund­ing. By­pass­ing the banks al­lows these start-ups to meet the mar­ket on their own terms, draw­ing funds from fam­ily, friends and those who be­lieve in their prod­ucts. More flex­i­ble fi­nanc­ing also gives busi­nes­sown­ers the chance to be more in­no­va­tive which, in turn, leads to greater cre­ativ­ity, com­pe­ti­tion and sus­tain­able growth.

A CHAL­LENG­ING EN­VI­RON­MENT

A crowd­funded ven­ture is one that seeks small fi­nan­cial con­tri­bu­tions from a large group of peo­ple. These numer­ous in­vestors can give eq­uity in the pro­ject, in re­turn for a spe­cific re­ward or sim­ply as a do­na­tion. Crowd­fund­ing typ­i­cally oc­curs over the in­ter­net—bring­ing the en­trepreneur to­gether with prospec­tive donors through an on­line plat­form.

Ac­cord­ing to Sa­muel Ray­mond, in­foDev Con­sul­tant: “Crowd­fund­ing does not re­quire the de­tailed level of doc­u­men­ta­tion, col­lat­eral, cash flow and other rig­or­ous re­quire­ments as do banks. There is the added bonus that crowd­fund­ing is an eas­ier, more cost-ef­fec­tive way to test and fine-tune new prod­uct ideas. A po­ten­tially good prod­uct or ser­vice idea can be brought to mar­ket within a shorter term through a prop­erly man­aged crowd­fund­ing pro­gramme.”

In 2016, the global crowd­fund­ing mar­ket reached US$35.2bn, ac­cord­ing to an in­foDev re­port, and US$324m of this to­tal was gen­er­ated in Latin Amer­ica and the Caribbean. Caribbean busi­nesses, how­ever, have been slow to re­alise the po­ten­tial of crowd­fund­ing, with con­cerns about the trust­wor­thi­ness of on­line fund­ing net­works, tech­no­log­i­cal chal­lenges and lack of aware­ness sti­fling up­take in the re­gion.

Late last year, in­foDev re­leased a com­pre­hen­sive sur­vey into crowd­fund­ing in the re­gion. Com­ment­ing on the re­port, Bryan Zhang, Co-Founder of the Cam­bridge Cen­tre for Al­ter­na­tive Fi­nance said: “The strength of fi­nan­cial in­no­va­tion such as crowd­fund­ing comes from its dy­namism, di­ver­sity and adapt­abil­ity to local con­text. There is sim­ply no ‘one-size-fits-all’ ap­proach that will mag­i­cally spur the growth of crowd­fund­ing in ev­ery coun­try. A holis­tic and ecosys­tem-based ap­proach would be best placed to un­lock the po­ten­tial of crowd­fund­ing in the Caribbean, whilst en­sur­ing the de­vel­op­ment is sus­tain­able and ap­pro­pri­ately reg­u­lated.”

In­foDev an­a­lysts took an in-depth look at four Caribbean coun­tries, cho­sen to rep­re­sent a range of pop­u­la­tions, ge­og­ra­phy and eco­nomic de­vel­op­ment. Saint Lu­cia was one of the four case stud­ies and re­searchers found sig­nif­i­cant chal­lenges.

Ac­cord­ing to the re­port, while both pub­lic and pri­vate stake­hold­ers in Saint Lu­cia are en­thu­si­as­tic about mak­ing al­ter­na­tive fi­nanc­ing avail­able to small busi­nesses, there is a lack of ca­pac­ity and pro­ject de­vel­op­ment. SMEs ex­pressed wide­spread frustration at bur­den­some pro­ce­dures for get­ting grants or other fund­ing and all suc­cess­ful busi­nesses sur­veyed said they had strug­gled in the early stages to build cap­i­tal.

BUILD­ING A CROWD­FUND­ING ECOSYS­TEM

While there is def­i­nitely a need for al­ter­na­tive fund­ing in Saint Lu­cia, de­bate still re­mains over how to cre­ate the ideal crowd­fund­ing en­vi­ron­ment. In­fodev re­searchers sug­gest small is­land states fo­cus on three ma­jor pil­lars: user ca­pac­ity, reg­u­la­tion and tech­nol­ogy.

De­vel­op­ing a com­mon stan­dard across the East­ern Caribbean, and en­sur­ing leg­is­la­tion re­flects a co-or­di­nated ap­proach based on in­ter­na­tional best prac­tices, would give all users a high de­gree of con­fi­dence in the sys­tem. Tried and tested on­line pay­ments, money trans­fers and e-com­merce plat­forms are all nec­es­sary.

While Saint Lu­cia has wide­spread mo­bile in­ter­net us­age and an ef­fi­cient 4G net­work, there are cur­rently no do­mes­tic crowd­fund­ing plat­forms avail­able to en­trepreneurs. There is con­nec­tiv­ity among the pop­u­la­tion thanks to high en­gage­ment of so­cial me­dia ser­vices such as Face­book, Twit­ter and What­sapp. How­ever, 60% of the adult pop­u­la­tion does not have a bank ac­count, ac­cord­ing to in­foDev.

While there may not be a local crowd­fund­ing provider, Saint Lu­cians are mak­ing use of in­ter­na­tional fundrais­ing sites such as Fundly and You­car­ing. In 2015 the to­tal amount of crowd­fund­ing raised for Saint Lu­cian or Saint Lu­cia-re­lated projects was US$72,000, ac­cord­ing to the East­ern Caribbean Cen­tral Bank. This was done through Fundly, You­car­ing, Ra­zoo and Global Giv­ing.

FAR-REACH­ING IM­PACT

Crowd­fund­ing isn’t just a pow­er­ful way of sup­port­ing start-ups and SMEs; it can also be a tool for pro­mot­ing so­cial causes. Pitch&Choose, based in Bar­ba­dos, is the Caribbean’s first re­gional crowd­fund­ing plat­form for non-prof­its and so­cial and cre­ative ven­tures. The on­line mar­ket­place aims to con­nect Caribbean causes with in­vestors and donors from all over the world. It hosts a num­ber of ini­tia­tives in­clud­ing FundRiseHER—a group formed by the Com­mon­wealth Busi­ness­women’s Net­work and the Caribbean Ex­port De­vel­op­ment Agency to pro­vide fi­nan­cial sup­port for the re­gion’s fe­male en­trepreneurs.

Mi­nor­ity groups or char­i­ties who can find them­selves shut out of the tra­di­tional bank­ing sys­tem, ei­ther through lack of rep­re­sen­ta­tion or lack of re­sources, can find a sup­port­ive net­work on crowd­fund­ing plat­forms pop­u­lated by small-scale in­vestors eager to use their cap­i­tal to drive change.

These sup­port­ers are fre­quently drawn from the Caribbean di­as­pora, with crowd­fund­ing pro­vid­ing an ef­fec­tive way of tap­ping into the Caribbean mar­ket at home and abroad. Many di­as­pora in­vestors are not just look­ing for a re­turn on their fund­ing, but seek

out op­por­tu­ni­ties to help their na­tive com­mu­ni­ties, and this rep­re­sents a huge op­por­tu­nity for so­cial en­trepreneurs. Ac­cord­ing to the World Bank, the Caribbean di­as­pora num­bers al­most six mil­lion and, in 2012, these ex­pats sent over US$7 bil­lion home (US$29.2 mil­lion of this went to Saint Lu­cia, com­pris­ing 3.7% of the coun­try’s GDP).

IN­CREASED UP­TAKE

In 2016, in­foDev of­fered the re­gion’s busi­ness­peo­ple a free Mas­sive On­line Open Course (MOOC) in crowd­fund­ing. The Crowd­fund­ing MOOC for Caribbean En­trepreneurs (CMCE) was the first of its kind in the re­gion and cov­ered crowd­fund­ing mod­els and plat­forms, how to iden­tify and an­a­lyse the tar­get au­di­ence, cre­at­ing a cam­paign mes­sage and tools and us­ing web an­a­lyt­ics.

The CMCE re­ceived 523 ap­pli­ca­tions, and 244 en­trepreneurs ac­tively par­tic­i­pated. At the end of the eight-week course, ap­pli­cants were in­vited to sub­mit their own projects which would then ben­e­fit from direct coach­ing, with the aim of bring­ing them to mar­ket.

The CMCE was over­sub­scribed, and it’s no won­der. Bur­den­some bank­ing and tech­no­log­i­cal ad­vances have com­bined to cre­ate the per­fect en­vi­ron­ment for crowd­fund­ing to thrive. Early adopters are al­ready reap­ing the re­wards and stake­hold­ers are ex­pect­ing oth­ers in the SME sec­tor to fol­low suit. Pol­i­cy­mak­ers and reg­u­la­tors must work to­gether to de­velop an ap­pro­pri­ate frame­work for these in­no­va­tive en­trepreneurs or risk find­ing them­selves play­ing catch-up.

The Caribbean has great po­ten­tial for crowd­fund­ing, pro­vided that the right en­abling en­vi­ron­ment is put in place to pro­mote it. Ac­cord­ing to a study re­cently com­mis­sioned by in­foDev, a global tech­nol­ogy and in­no­va­tion pro­gramme at the World Bank Group, the re­gion is ripe for growth in this flour­ish­ing al­ter­na­tive fi­nanc­ing mech­a­nism

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