CrowdFunding and the Cameroonian Reality: Opportunities and Challenges

April 24, 2018

Crowdfunding has become a global fundraising phenomenon over the last half decade, and increasingly, the trend holds true in Africa.  In fact, crowdfunding holds a special role in Africa – with the potential to solve the continent’s lack of access to finance challenges. Africa’s startup ecosystem has, of course, responded, with crowdfunding platforms catering to every niche springing up.

In the Cameroonian business landscape however, this phenomenon is still dragging although it is steadily gaining traction. In 2015, the African crowdfunding market amounted to about $70 million, accounting for less than one percent of the global crowdfunding market. However, a 2013 World Bank report estimated that by 2025, crowdfunding will be a $96 billion industry growing at a rate of 300% per year.

The big question is “where does Cameroon stand in this equation?”

While the fight to transform small businesses and entrepreneurship in Cameroon is on-going there are important challenges and regulatory barriers that need to be better understood and addressed  as far as the phenomenon of crowdfunding and its potential to boost small businesses financially is concerned.

Crowdfunding platforms are structured in such a way that an entrepreneur will post a business pitch to a website, including a fundraising target that the entrepreneur hopes to reach.

Frequently, funders are members of the entrepreneur’s social network, but in many cases funders may be the general public or institutional investors looking for small businesses to support.

Much crowdfunding activity in Africa is donation-based, but there has been some significant early activity around equity-based and debt-based platforms in South Africa, Kenya and Ghana. The entrepreneur therefore needs to determine or define the terms on which donations are made.

In Cameroon, crowdfunding companies are still yet to see the light of the day. Although you can count the number of the existing ones already operating in the country, much awareness needs to be created as this form of financial service is still new to the general public.

There are so many opportunities for Entrepreneurs who will embrace the business of crowdfunding. The most salient being that crowdfunding creates more avenues for businesses to access capital.

Traditionally, entrepreneurs—when they can—either borrow at fixed rates from banks or seek investment from established business communities. However, in Cameroon, access to credit is often constrained: Banks are highly risk-averse, and would-be borrowers are often too small-scale, or lack the credit history and other data, to qualify for bank loans. Crowdfunding enables entrepreneurs to appeal directly to supporters or potential customers without onerous inquiries into their creditworthiness, business histories or incomes.

Challenges:

Investors and entrepreneurs who use crowdfunding platforms are operating in an unregulated space. This raises two issues. First, the absence of regulation means an absence of adequate investor protections. Without laws to protect privacy and ensure that contributors have opportunities for legal redress, investors may not sufficiently trust an entrepreneur to fund his or her venture.

Secondly, the lack of clarity about the legal status of crowdfunding organizations risks causing a chilling effect for international investors. In order to encourage more crowdfunding, governments need to mitigate concerns about money laundering and fraud. Moreover, most equity or debt crowdfunding organizations in Cameroon are not licensed as financial services companies. As a result, some investors are concerned that they are running afoul of laws when making contributions. Regardless of whether a given crowdfunding platform, company or investor is actually breaching any laws, there is widespread investor concern about either being defrauded or inadvertently breaking the law. Crowdfunding platforms can do relatively little on their own to dispel these concerns; the government would benefit from enacting clear laws on crowdfunding so that investors can achieve clarity on how to make contributions legally.