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CROWDFUNDING POTENTIAL FOR NIGERIA

Report 2017














Suzanne Wisse –Huiskes
CROWDFUNDING POTENTIAL FOR NIGERIA 2017

CrowdfundingHub is the European Expertise Centre
For Alternative and Community Finance

info@crowdfundinghub.eu
www.crowdfundinghub.eu
@CrowdfundingHub

Keizersgracht 264
1016 EV Amsterdam
The Netherlands

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CROWDFUNDING POTENTIAL FOR NIGERIA 2017

Table of contents

Introduction
Acknowledgements

I. What is Crowdfunding?
II. State of Crowdfunding in Nigeria
A. Technology
B. Culture of Entrepreneurship
C. Regulation
D. Capital
III. Crowdfunding Potential for Nigeria in 2017
IV. About

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Introduction

This report is published by the investments from a large group of people
CrowdfundingHub to review and assess (the crowd). This new form of capital
the development of the crowdfunding formation emerged in the wake of the
sector in Nigeria. Until now this 2008 financial crisis largely because of
publication has been the only West Africa the difficulties faced by artisans and
focused assessment of crowdfunding. entrepreneurs in raising funds. With
traditional banks less willing to lend,
The report is researched and written by entrepreneurs started to look elsewhere
MatchBox Consultancy and follows a for capital.
method using a mixed methodology of
literature review, an extensive range of Crowdfunding began as an online
interviews, data collection and analysis extension of traditional financing by
and survey based content. Worldwide, friends and family: communities pool
crowdfunding is said to have raised 34,4 money to fund members with business
Billion USD in 2015. A fraction of this has ideas. This exciting phenomenon is
been funded in Africa, 83,2 Million USD. spreading across the world. A 300%
This report provides an insight into how growth was established in the last years,
Nigeria has reacted to this trend and how predominantly in the US and Europe.
the market is developing.
In Nigeria, a handful of crowdfunding
Crowdfunding can be a powerful tool for platforms are online. This is extremely
social change in developing countries. It limited for Africa’s first economy. The
enables entrepreneurs to find capital. It crowdfunding ecosystem is generally built
enables political movements to engage a on availability of Internet, social media
large crowd. It enables artists to market and the ability to transfer funds in a
and sell their work. And crowdfunding standard based way, with mobile
enables non-profits to gain support from payments and online funds transfers.
people with small donations. Regulation and trust are also a big factor.
Crowdfunding is a form of alternative
finance. It provides access to capital for a The goal of this report is to determine the
segment of the population that cannot crowdfunding potential for Nigeria and to
access it through traditional means. In add to the discussion on crowdfunding in
Nigeria, Africa’s largest economy and Nigeria and West Africa. It is intended to
home of millions of young entrepreneurs, be a practical document for those
crowdfunding could be a great tool to interested: crowdfunding platforms,
boost organisations and individuals. investors, entrepreneurs seeking funding,
However, crowdfunding is yet to be fully regulators and other potential
embraced. stakeholders. The aim is to advance the
field of crowdfunding as a part of
What is crowdfunding? In short, Alternative Finance, as an alternative to
crowdfunding is an Internet- enabled way traditional funding from banks and
for organizations to raise money (funding) governments. Nigeria is a huge market
in the form of either donations or with an incredible amount of potential if
one gets the formula right.

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Key Points
Nigeria

____________ ____________ ____________
01 02 03
Nigeria is one of the fastest Crowdfunding platforms The African continent
emerging markets in the are slowly entering the accounts for about 83,2
world and Africa’s nr 1 market. At the start of Million USD crowdfunding in
economy. The country is at 2017, 4 Nigerian based 2015. In Nigeria, an est. 7-8
the beginning of an exciting platforms were online. Million USD was funded by
growth of tech start-ups. This is relatively limited. crowdfunding.

____________ ____________ ____________
04 05 06
The banking system is Nigeria suffers from great In August 2016, the
moving ahead of its political instability. For Securities and Exchange
counterparts in other entrepreneurs, it ‘s difficult Commission of Nigeria
emerging markets. It to anticipate whether (SEC) announced that
provides a promising existing policies or equity crowdfunding is
infrastructure for regulation will change. In now banned in Nigeria
crowdfunding in Nigeria, addition, corruption and until further notice.
with innovative mobile multiple taxes make it a Donation based
banking apps. challenging environment. crowdfunding is still legal.

____________ ____________ ____________
07 08 09
Other major concerns Moving forward, donation Other initial steps include:
according to this report are and reward based Platforms bundle forces and
lack of trust and access to crowdfunding should be work on new legislation with the
credit facility. These fostered as a first step current government. A
challenges will not be easy towards crowdfund regulatory framework is also
to tackle, yet many investing. They have essential to promote capital
ambitious entrepreneurs are successfully paved the way formation while protecting
utilizing innovative for equity based investors. External linkages in
strategies to overcome crowdfunding in other US and EU can be used for
these obstacles. regions. additional capacity.

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Acknowledgements

‘Crowdfunding potential for Nigeria’ is gauge cultural perception from individuals
based on mixed-methodology including regarding key factors identified as
interviews, fact-finding and a survey that important in the applicability of
collected cultural perception from crowdfunding within a culture or country.
individuals regarding key factors in the Over 30 market participants and actors
applicability of crowdfunding within the including policy makers, NGOs, investors,
country. The survey is based on the report and entrepreneurs completed the self-
‘Crowdfunding Potential from Developing assessment to gain a wider range of
Countries’ from World Bank/Infodev 2013. opinions.
This paper provides a self-assessment to

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I. What is crowdfunding?

Crowdfunding is an Internet enabled way 1. Equity
for businesses and other organizations to Equity crowdfunding is focused on
raise money in the form of either providing equity financing to companies.
donations or investments from multiple In this model the company will attempt to
individuals. Crowdfunding makes use of raise capital from a large group of small
the easy accessibility of vast networks of investors (the crowd) instead of a small
friends, family and other supporters number of large investors. In exchange for
through social media websites like the investment, the crowd will get a
Facebook and Twitter. This new form of portion of the shares of the company.
capital formation emerged in an
organized way in the wake of the 2008 2. Lending
financial crisis largely because of the In this model the organization or company
difficulties faced by artisans, will borrow money from the crowd. The
entrepreneurs and early-stage enterprises details of the loan such as payback
in raising funds. With traditional banks period, return, instrument (e.g. bond), etc.
less willing to lend, entrepreneurs started is defined by the fundraiser and the
to look elsewhere for capital. platform. Microfinance is a part of this
model
Crowdfunding began in the US as an
online extension of traditional financing 3.Donations/reward
by friends and family: communities pool The project collects donations from the
money to fund members with business crowd, while the crowd does not receive
ideas. In less than a decade, any financial benefit in return. The
crowdfunding has gained traction in a donations can be for non-business
number of developed economies, purposes including philanthropic, cultural
including Australia, the United Kingdom, or community-based projects. The reward
the Netherlands, Italy, and the United model for donors will usually be in the
States. form of non-financial rewards.

Crowdfunding takes advantage of crowd- Crowdfunding has numerous benefits.
based decision-making and innovation, Ultimately, there are millions of people
and applies it to the funding of projects or giving their money over the internet to
businesses. Using social networks, social people they have never met. They trust
profiles, and the viral nature of web-based that they get their just returns. This
communication, individuals and enables entrepreneurs, musicians, charity
companies have raised billions of dollars workers and others to tackle traditional
in debt, equity, and donations for projects boundaries to financing in their country to
over the past five years. It has emerged bring products and services to market in a
into a multi-billion dollar industry. collaborative way. And that is what is key
for a developing market such as Nigeria.
Types of crowdfunding
A distinction can be made between the
following three main crowdfunding
models

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II. State of crowdfunding in Nigeria

The African continent brings a minimal The total African Alternative Finance
contribution to global crowdfunding market accounts for about 83,3 Million
activity, 0,5% of the global market in 2015. USDi in 2015. Nigeria raised almost $8
Slow adaption to crowdfunding by African million in 2015 with the majority of this
entrepreneurs is believed to be caused by coming from peer-to-peer business
the regulatory environment and the fact lending and equity crowdfunding (over
that e-commerce is not broadly used. In 90% of activity). The remaining 10% can
Nigeria, Africa’s largest economy and be attributed to microfinance, donation
home of millions of young entrepreneurs, and reward-based crowdfunding. ii
crowdfunding could be a great tool to
kick-start organisations and individuals. Main issues to develop a successful
However, crowdfunding is yet to be fully crowdfunding ecosystem are lack of trust
embraced. and the absence of a regulatory
framework. Obstacles will not be easy to
Nigeria is one of the fastest emerging overcome, yet initiatives e.g.
markets in the world. The country is at the CrowdfundingHub and the African
beginning of an exciting growth of tech Crowdfunding Association (AfcA) can
start-ups. An increasing part of the contribute to amend the crowdfunding
Nigerians are using social media and model to local needs.
online stores. Also, the availability of
capital is expanding. Crowdfunding is bound to grow in the
coming years. Slowly platforms are
entering the market for this reason. At the
start of 2017, 4 Nigerian based platforms
Population Population were online. This is extremely limited for
179 mln in 270 mln in
2016 2030 Africa’s nr. 1 economy.

Donate-ng.com is donation based (2015)
GDP
70% growth targeting charities.
population
is poor 2,7% in Malaik is an equity based platform (2015).
2015
Imeela is donation based (2016) targeting
17 mln 97,2 mln Nigerian designers, musicians and
small active entrepreneurs.
enterprises internet
users Naturad is donation based (2016)
targeting charities.
15 mln 84% A handful of other platforms have come
social mobile
media connection and gone over the past years but were
users unsuccessful. Others are still under

Figure 2. Nigeria facts

i
The Africa and Middle East Alternative Finance
benchmarking Report; University of Cambridge,
February 2017
ii
The Africa and Middle East Alternative Finance
benchmarking Report; University of Cambridge,
February 2017

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development (1kfund.com, Pitch Africa, The crowdfunding ecosystem generally
The Next Economy)iii. consists of Technology, Culture of
The major challenges to the performance Entrepreneurship, Regulations and
iv
of enterprises in Nigeria are: Lack of Capital. These key factors are
managerial skills, limited access to represented in the next chapters of this
finance and policy environment issues. report, as well as in the Survey completed
by over 30 crowdfunding stakeholders in
For Nigeria to have a credible Nigeria. The Survey is an assessment for
crowdfunding system, the country the countries readiness for crowdfunding.
requires entrepreneurs and willing
investors. Moreover, the country needs
supportive ecosystems, enabling
initiatives and actions, including sound
regulations, effective technological
solutions and cultures that can adapt to
this new investment vehicle.

A. Technology B. Culture of Entrepreneurship

Internet access, technology to facilitate Co-working spaces, incubators and
the ongoing communication and new accelerators, peer-to-peer mentorship,
services to facilitate transactions oversight, investor relations/reporting

C. Regulations D. Capital

Enabling policy from incorporation to Financing for start-ups, activity of angel
bankruptcy, a regulatory framework for investors, existence of venture capital
crowdfund investing funds

iii A detailed list of current crowdfunding platforms
can be found in chapter III iv Infodev/Worldbank report 2013

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A. Technology

The first key factors that facilitate Nigeria boasts over 97 million mobile
crowdfunding in a developing country are Internet users that have activities online.
technology and education. Strong social Yet, as big as the Nigerian tech landscape
media market penetration and Internet is, getting customers to pay online is still
usage are necessary to control a major obstacle for ecommerce. The
demographic and technology trends to country’s two largest online shopping
drive collaboration and cultural shifts. The companies, Jumia and Konga, might have
most important difference between failed if not introducing its cash on
‘traditional friends and family finance’ and delivery payment option, which is the
crowdfunding is the usage of social preferred payment for the majority of the
media to broaden the reach of the online transactions on these stores. Many
fundraising campaigns and to use better Nigerians see online payments as
measurement tools. something that could easily be
manipulated and succumb to fraud. This
In Nigeria, a little over half of the lack of trust is further supported by the
population uses the Internet v , however non-existence of any legal framework that
few people use a laptop to access the protects investors against fraud reports.
Internet. They use their smart phone
instead, as it is cheaper and more Summary
effective; Wi-Fi is scarce whereas 3G is The outcome of the survey on Technology
widely available in Abuja and Lagos, the states that mobile technology is seen as a
commercial capital. The level of mobile mechanism for communication and
smartphone penetration is not a particular collaboration by most Nigerians. The
high percentage (30%), however has a country is ready to use these tools to
high growth in 2015. This growth is due to build communities of engaged
the young population (a shocking 60% is entrepreneurs and investors, so that as
younger than 25 years old vi ). A the industry starts to develop, they can be
smartphone is mostly used for social connected. Crowdfunding platforms can
networking. Social media adoption in use the power of social media to promote
Nigeria is increasing exponentially over their campaigns.
the past decade. The young generation is
getting engaged in Social Media,
especially Facebook and Twitter.

The Nigerian banking system is moving
ahead of its counterparts in other
emerging markets. It provides a promising
infrastructure for crowdfunding, with
innovative mobile banking apps. It
services electronic funds transfers and
other Internet transaction enabled
services.

v Source; CIA world fact book 2015
vi Source; CIA world fact book 2015

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B. Culture of Entrepreneurship

Culture of entrepreneurship is another including Co-Creation Hub, accelerators
important factor in the crowdfunding such as IDEA Hub, and numerous co-
ecosystem. Entrepreneurship is a big part working spaces such as CapitalSquare
of the Nigerian culture, the majority of the and Lagos Garage. Lagos is hosting a
countries economy is made up of small network of angel investors, the Lagos
business owners. Many Nigerians own Angel Network, which was formed by
one or more businesses, although most of investors and influential businessmen.
them are not registered. Nevertheless,
over 70.000 new businesses are In addition, there are TedX platforms in
registered on a yearly basisvii. It must be Lagos and in Abuja.
said, the lack of jobs and a rise in poverty
leave few other options for the Nigerian Summary
people. And if one business fails, one can Based on the assessment score of the
easily move on to the next without losing Survey, Nigeria has a moderately
face. developed entrepreneurial capacity and
some investment risk tolerance.
Governments and banks are not Opportunities are found in training and
particularly eager to help entrepreneurs mentorship programs. Also, even more
with loans or programs, so entrepreneurs broad initiatives could be launched that
mainly depend on Alternative Finance. engage early success stories in actively
Attracting Venture Capital from abroad to building the ecosystem. Creating external
finance entrepreneurs is greatly difficult linkages for additional capacity can be
because of the country’s political and helpful, for instance with the African
economical instability. People tend to Crowdfunding Association or other peers
take risks in their investments, although in the EU and US.
often they invest in a business because
they feel obliged to help a friend or
relative with their business. Nigeria has a
growing number of diaspora investors
that are based in the US, UK and EU.

Collaboration between entrepreneurial
events and hubs including business plan
competitions, incubators accelerators,
universities and co-working spaces can
create a stage for opportunity and
oversight in crowdfunding.
Individuals have initiated incubators,
entrepreneurial hubs and business plan
competitions. Mostly without government
help. Lagos, the commercial capital with a
population of over 20 million, is home to
internationally recognized incubators

vii
The World Bank
econ.worldbank.org/research/entrepreneurship

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C. Regulation

Regulation can both enable and deter regulatory framework that will support
entrepreneurship and crowdfunding this massive global innovation. Equity
depending on its structure and scope. In crowdfunding could prove to be an
general, Nigeria scores as one of the expedient way for many struggling
lowest countries in the world when it entrepreneurs to raise capital, since they
comes to ease of doing business. In fact, are considered as high risk to banks.
the country ranks nr. 169 on the world Donation and reward-based crowdfunding
index, nr. 1 having the most business are excluded from the SEC’s regulatory
friendly regulations viii . Nigeria suffers remit.
from a great political instability. It is often
difficult to anticipate for entrepreneurs The lack of patent laws is another
when existing policies or regulation will concern. It discourages entrepreneurs to
change. In addition, corruption and share their business ideas online. When
multiple taxes make it a difficult their business model is showcased on a
environment to work in. crowdfunding platform, their idea is
unprotected from copycats. Another
In August 2016, the Securities and obstacle for entrepreneurs is the process
Exchange Commission of Nigeria (SEC) of starting a new business in Nigeria. This
announced that equity crowdfunding is process is frustrated by government
now banned in Nigeria until further notice. bureaucracy, with people resorting to third
Donation based crowdfunding is still party agents to help them facilitate the
legalix. SEC regulates all securities offered process of business registration. A
for sale by public companies in Nigeria positive note is that lower taxes and
and currently there are no provisions higher price ceilings have helped
relating to crowdfunding in the SEC rules. entrepreneurs to move forward. Also, the
Furthermore, they regulate the formation government is actively promoting use of
and operation of all types of companies Internet and trying to incorporate
and enterprises in Nigeria and can place technology in the country.
restriction in dealing with transfer of
shares. The SEC believes that Summary
crowdfunding cannot be effective in The outcome of the survey on the
Nigeria for now because of lack of rules. category Regulation implies that there is a
The legal provisions of crowdfunding are fair amount of regulation in place to
a big challenge to the organisation. encourage entrepreneurship. The survey,
However, they are looking for ways to go however, does not take into consideration
about it so that companies will enjoy the the recent ban on equity crowdfunding.
benefits of crowdfunding in the country
as well. In order to do so, SEC is looking at To build a credible crowdfunding system,
the crowdfunding rules in US and Canada the government should encourage the use
in order to ensure an enabling legal and of donation and reward based
crowdfunding. More importantly, a
regulatory framework is essential to
viii
The world Bank, Data 2014
econ.worldbank.org/research/entrepreneurship promote capital formation while
ix
http://www.thisdaylive.com/index.php/2016/08/1 protecting investors.
5/sec-rules-out-crowdfunding-in-nigeria-for-now/
15th August 2016

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D. Capital

The availability of capital is usually one of companies and networks that specialize
the most prominent missing elements in African entrepreneurs such as
when attempting to build a successful VC4Africa.
entrepreneurial ecosystem. In developing
countries, limited access to finance is Summary
already the second-most cited obstacle for The outcome of the survey on Technology
businesses, right after unstable electricityx. states that lack of access to credit facility
This is also the case in Nigeria.
remains a major issue. However, more
and more capital is efficiently flowing in
Lack of access to credit facility is a major
the private capital markets. The
stumbling block for a business start-up in
government and other stakeholders
Nigeria. Financing is mainly provided by
should understand what changes have
friends and family. Enterprises in Nigeria
taken place to encourage capital
find it difficult to access financing from
formation in the private sector and further
commercial lenders such as banks, as
foster that.
they often have strict requirements that
enterprises cannot meet. Where financing
is available, it is often too expensive. Also,
enterprises are not aware of the
alternatives sources of financing
available. They often don’t have the skills,
time or network to seek connection with
potential investors. There are few angel
investors or venture capitalists in Nigeria.
Altogether, this translates to a great lack
of available funding for entrepreneurs.

The private sector and banks are
becoming increasingly interested in
supporting crowdfunding platforms
financially. However, they are waiting for
proof of concept; can crowdfunding be
profitable in Nigeria?

Local Angel investors, such as Lagos
Angel Network, are now starting to invest
in early stage businesses in Nigeria. In
addition, Venture Capitalists from the US
and EU, e.g. 500Startups and TLcom are
entering the market. Other investors make
investments through Venture Capital

x IFC, 2010, Scaling-Up SME Access to Financial
Services in the Developing World

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III. Crowdfunding Potential for Nigeria in 2017

It is believed that Nigeria can possible Other major concerns according to this
create an effective crowdfunding industry report are lack of trust and access to
in Nigeria. Firstly, with a fast growing credit facility. These challenges will not
population of 179 million, where 84% has be easy to tackle, yet ambitious
mobile connection and over half of the entrepreneurs in Nigeria are utilizing
population is already active on Internet, innovative strategies to overcome these
there is a strong social media usage and a obstacles when raising money from the
great network of family and friends. crowd.
Secondly, the entrepreneurial scene is
booming. Thirdly, effective payment Other initial steps could include:
solutions are in place.
• Crowdfunding platforms and other
The crowdfunding ecosystem, however, stakeholders bundle forces and work on
consists of more than technology and new legislation with the government.
culture of entrepreneurship. The most • Crowdfunding platforms using the power
pressing issue in 2017 is obviously of social media to promote their cause.
regulation. The 2016 ban on equity • Encouragement from the government to
crowdfunding in Nigeria is seriously use donation and reward based
slowing down the introduction of crowdfunding. More importantly, a
crowdfunding in the country. To move regulatory framework is essential to
forward, donation and reward based promote capital formation while
crowdfunding should be fostered as a protecting investors.
first step towards crowdfund investing. • Create external linkages for additional
These types of crowdfunding have capacity, for instance with the AfcA or
successfully paved the way for equity peers in the EU and US.
based crowdfunding in other regions.
Since the authorities in Nigeria struggle As the goal of this report is to determine
with the regulation on equity based the current crowdfunding potential for
crowdfunding, the situation demands a Nigeria and to add to the discussion on
proactive attitude from existing platforms crowdfunding in Nigeria and West Africa,
and crowdfunding associations. a new assessment will be made in 2018.

Platform Launch Type Targets Funded amount
xi
Donate-ng.com 2015 Donation Charities 10 MlN Naira (=32.000 USD)
Imeela 2016 Donation Designers, musicians, Marginal
entrepreneurs
Naturad 2016 Donation Charities Marginal
Malaik 2015 Equity Entrepreneurs Marginal
Expected
TheNextEconomy 2017 Donation Entrepreneurs

xi exchange rate based on www.xe.com January
1st 2017

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CROWDFUNDING POTENTIAL FOR NIGERIA 2017

About

About the author About the CrowdfundingHub
Suzanne Wisse – Huiskes is an CrowdfundingHub is the European
internationally recognized crowdfunding Expertise Centre on Alternative Finance
expert. As a frontrunner and Strategic and Community Finance. With a core
Consultant (MatchBox Consultancy), team in Amsterdam and local experts
Suzanne aims to advance the field of throughout Europe, they are a research
alternative finance in the EU and Africa. and consultancy network of crowdfunding
Benefitting from over 10 years of and alternative finance experts.
experience, she pushes crowdfunding in CrowdfundingHub is initiated in 2015
developing markets in cooperation with by Ronald Kleverlaan, an advisor to the
platforms, impact investors and NGO’s. European Commission and co-founder of
the European Crowdfunding Network.
Originally from the Netherlands, she was
most recently based in Nigeria (2014-
2016) and the UK (present). During her
time in Africa, she worked closely with
banks, platforms, entrepreneurs,
corporates and other crowdfunding
stakeholders on various assignments.

In addition, Suzanne is passionately
involved in mentorship programs that
challenge ambitious African
entrepreneurs, such as the Tony Elumelu
Foundation and the Mandela Washington
Fellowship.

All comments and feedback on this report
are welcomed and appreciated. Kindly
contact the CrowdfundingHub or the
author (suzannewisse@outlook.com).

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