Access to finance is amongst the main challenges faced by micro, small and medium-sized enterprises (MSMEs) in creating and growing their business in African, Caribbean and Pacific (ACP) countries. Meanwhile, crowdfunding is disrupting the financial services industry by democratising access to capital for individuals and businesses and revolutionising the way they interact with financial products. Despite its relatively slow development in ACP countries, crowdfunding has great potential for increasing access to finance for MSMEs by enabling them to tap into alternative sources of funding.
Crowdfunding presents both opportunities and challenges if developed in ACP countries. On the one hand, crowdfunding offers opportunities to tackle development challenges, including by increasing the supply of new sources of capital to bridge the finance gap for MSMEs, boosting and channeling diaspora remittances to productive investment in their countries of origin, and fostering financial inclusion.
On the other hand, there are some challenges and risks that are constraining the full potential of crowdfunding such as the lack of crowdfunding awareness and trust in its stakeholders (crowdfunding platforms, regulators, funders, etc.). Additional structural factors exist that may challenge the development of crowdfunding, such as the low penetration of the internet and social media in some countries, the low utilisation of electronic payments, and the ability of the legal framework to meet the needs of the crowdfunding industry.
Finally, the paper recommends that policymakers engage in relevant policies for wider public adoption of crowdfunding by:
- building crowdfunding ecosystem capacity
- strengthening technology infrastructure for crowdfunding
- enacting regulatory frameworks to support crowdfunding