In our newsletter last week, we continued our series on Crowdfunding and highlighted the benefits of Crowdfunding as a means of funding.
Crowdfunding platforms have gained popularity in recent years as an alternative capital source—both for debt and equity; however, the major challenge of uncertainty of funding remains. In this week’s edition, we shall discuss the viability of Crowdfunding and the importance of exploring the viability of this alternative source of funding in the Nigerian climate for MSMEs.
We need to establish country specific strategies to drive and establish crowdfunding as a viable alternative for funding.
- ENABLING POLICIES
The crowdfunding market is in its infancy, especially in developing countries, but the potential market is significant. Putting in place enabling policies, rules, and regulation for crowdfunding such as the proposed Crowdfunding rules by the Securities and Exchange Commission is important. If approved, this will effectively establish crowdfunding as a viable source of capital as it serves as reassurance to the Investors, and entrepreneurs. It also helps in balancing the need for investor protection with capital formation.
It is also pertinent to state that addressing policies and regulations that currently make it burdensome for MSMEs to commence and conduct business operations as well as bankruptcy laws for MSMEs is also evaluated.
In Nigeria, technological advancement has become necessary to ensure smooth operations and continuity of business as evidenced during this COVID-19 pandemic. To ensure smooth running of crowdfunding, platforms must have access to reliable broadband Internet or mobile data networks to facilitate ongoing communication between investors and entrepreneurs. In addition, enabling tools must also be employed to operate freely in order to streamline the business lifecycle.
- MITIGATION OF RISKS ASSOCIATED WITH CROWDFUNDING
The rate of growth of crowdfunding, and its emergence in developing and developed countries, suggests that this phenomenon can become a tool in the innovation ecosystem of most countries economically. It is necessary to craft exceptions to security regulations that allow easy registration for fundraising projects that will also strategically tie crowdfunding to patriotism i.e. establish rules and regulations that support local production and businesses.
NASD is rightly positioned to serve as the social web between the closed and private nature of investing in small businesses and start-ups by enhancing the flow of both information and capital to MSMEs.