[dropcap]F[/dropcap]inancing 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 business-owners 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.
