PHILLIMON MHLANGA
Zimbabwe companies are missing out on crowdfunding, a new model for raising funds for business needs which has proved to be a viable alternative financing platform in other countries across the world and could help extricate struggling local firms from their financial quagmire.
Crowdfunding refers to the obtaining of funds from the general public or institutions and is conducted via the internet platform, usually constituted by contributions of small amounts from large numbers of people.
The platform acts as a matchmaker between companies and the crowd, who fund the projects within a predetermined time frame. It is the fastest growing business financing model and can take the form of equity-based crowdfunding or debt.
Despite the severity of local companies’ capital needs, the funding model has not appealed to local firms.
The alternative funding concept in the financial system has gained substantial popularity across the world where it is now a vibrant industry and developing faster than expected with global firms embracing it to generate value by embedding the platform capabilities into their business models.
Analysts said the future of Zimbabwe’s struggling firms lies in crowdfunding as they do not enjoy access to capital and traditional forms of financing amid unprecedented economic and financial crisis prevailing in the economy.
“It’s a huge opportunity for Zimbabwe companies (to use crowdfunding) and there are very encouraging numbers from other countries. So, there is no reason why Zimbabwe should be left behind the rest of the world (in
embracing the alternative capitalraising platform),” Ken Sharpe,
the executive chairman of West Property Zimbabwe said.
“It needs to be now, it’s time business leaders in Zimbabwe should engage in this kind of spirited discussion and analyse crowdfunding and other
mechanisms and think outside the box to save their businesses and at the same time provide safeguards for investors. It needs to be now to create economic growth.
We have done lots of projects including the thriving Mbudzi Market in Harare, Mainway Meadows, Mt Pleasant, Gunhill and soon we will be launching crowdfunding in Borrowdale. ”
Economist and associate wealth consultant at deVere Zimbabwe Norman Mudadi said the world has embraced crowdfunding for raising capital although the concept has not yet been fully adopted in Zimbabwe with companies having been slow to take up these alternative financial market models for some reasons.
“These are critical in economic development the world over.
It presents an opportunity for Zimbabwe entrepreneurs to get alternative funding for their businesses since most banks are not lending because of volatility in the market.”
CEO Africa Round Table board member, Kenias Mafukidze said there were plans to create a property crowdfunding for its members.
“In the last 10-20 years value has vanished and we have the real estate industry as the only one sector left standing. Now, we have an opportunity to create a crowdfunding platform for CEO Africa Round Table members, put some resources together so that we can put some inflation proof
and have members come in and participate. Property is known to be
a safe haven,” Mafukidze said.
Given crowdfunding applicability to emerging markets like Zimbabwe, the online method of fundraising allows businesses to put their ideas or pitches onto a digital platform. These pitches are then available for people worldwide to see and decide whether or not they would like to support the
businesses.
One critical issue is that with crowdfunding, there is no
pressure of repayments, experts told Business Times.
But, this has not been the case with local companies with small to medium enterprises in Zimbabwe facing severe financing constraints that have been limiting their growth and development.
The harsh reality is that local companies face strict eligibility requirements and they are starved for capital because the most common sources of financial resources- such as bank loans, private equity and public offerings
of securities- are beyond the reach of these companies and consequently,
meaning many innovative ideas that could result in booming business for
the national economy and for the creation of jobs are not developed.
According to the latest survey by crowdfunding hub in the Netherlands, big players operating in many countries across the world, who are raking in formidable sums of dollars to support businesses, are Kickstarter, which has helped raise over US$3bn in the last few years, Indiegogo (over US$2bn), Crowdcube (£500m) and Circleup (US$400n).
The survey also shows that of the 20 best-funded crowdfunding platforms globally, only two are in the blockchain category that is the Etherium and Bitcoin cryptocurrency platforms.
In the United States alone, more than 300 crowdfunding platforms are in operation. Kickstarter, the world’s largest crowdfunding platform and Indiegogo platforms dominate the US crowdfunding market.
Others are PledgeMusic, Seed&Spark, WeFunder and Banraiser. In Germany, Europe’s largest economy, the top platforms are Betterplace.org, Auxmoney.de, Seedmatch.de, Startnext.com and Wemakeit, among others.
Indiegogo and Kickstarter, have a massive presence there.
Across the United Kingdom, crowdfunding, in all its forms continues to grow and thrive. Top platforms include Crowdfunder.
com, Fundingcirle.com, Zopa.com, Crowdcube.com and Seedrs.com.
Again Kickstarter and IndieGoGo have UK presence.
The Netherlands has a long history and a wide variety of crowdfunding platforms that include Spotcap, Lendico, VooDeKunst, GeldVoorElkaar and
Oneplanetcrowd, among many.
In Belgium, there is Look&Fin, Ulule, Angel.meCrowFun.
be, MyMajorcompany, Mymicroinvest.com and Bolerocrowdfunding,among many.
Indiegogo and Kickstarter have a relatively large presence as well in
Belgium.
France was among the first countries to embrace crowdfunding with the first platforms launched soon after the 2008 financial crisis.
France now has more than 200 crowdfunding platforms including volumes doubling each year.
The platforms include LendingClub, Indiegogo, Kickstarter,KissKissBankBank& Ulule, Anaxago, Weseed, Lendix,Unilend, and Lendopolis,among many.
Crowdfunding has also gained traction in Africa because of the new
opportunities it provides businesses looking to raise capital.
According to Disrupt Africa latest report, more than 75% of the capital
raised through crowdfunding has gone to Nigeria, South Africa and
Kenya, in the past few years.
Closer home, in South Africa, which is the second largest economy
in Africa, crowdfunding has become a growing force with about half a
dozen significant crowdfunding platforms. Thundafund and BackaBuddy are the most successful.
Other players in the South African crowdfunding ecosystem are Jumpstart, Angel Investment Network, Uprise.Africa and the People’s Fund.
Crowdfunding has also become popular in Africa’s biggest economy,
Nigeria, raising billions of dollars to fund businesses.
Kickstarter and Indiegogo are the most popular platform in Nigeria. Others are in GoFundMe, Crowdfunder, Imeela and NijaFund, among many.
The most popular crowdfunding in Kenya is M-Changa.
The University of Cambridge’s latest report estimates that a total crowdfunding activity in Africa would reach over US$5bn by 2030.
However, regulation processes in countries in Africa are at different
stages of development.
In Zimbabwe the process is yet to kick off. And in the absence of such
alternative investment regulations, crowdfunding will never scale
because regulation provides investors protection and further benefits, experts told Business Times.
Plans for alternative investment laws have been on the table for a
long time now with the government and the Zimbabwe Stock Exchange
taking long to develop them.
Analysts said for crowdfunding to be sustainable and scalable in Zimbabwe, the government should fast track the alternative investment laws.
Finance and Economic Development Minister, Mthuli Ncube, has suggested the introduction of Real Estate Investment Trusts (REITs), which are securities that are publicly traded on stock exchanges the same way as equities.
These give investors an option to invest directly in the real estate sector. REITs holders get a regular return, which is usually a higher rate of dividends than equities or many fixed income investments.
“We need to create liquidity. So, we need to introduce REITs to allow the insurance sector to create liquidity. We want to make sure REITs take off. That will give a positive yield,” Ncube said.
Sharpe said it was unfortunate that there is no legislation in Zimbabwe for REITs.
“The currency to me is the biggest problem in Zimbabwe. It’s a welcome to see the government of Zimbabwe announcing that the United States dollars are allowed again albeit free funds. I hope it will allow the currency to be free,” Sharpe said.
