Crowdfunding is the art of raising funds through social, professional, and public networks using the internet. With the rise of this form of financing, there are many crowdfunding success stories, but in the Caribbean among the most successful campaigns is that of the Jamaica bobsled team. In 2014, the team raised over $155,000 using the Indiegogo and Crowdtilt crowdfunding platforms to fund its participation in the 2014 Winter Olympic Games in Russia.
Samuel Raymond, infoDev consultant and an author of the report, says several factors favor the development of this new-age financing platform in the region. These include:
- The Caribbean’s relatively high internet penetration rates and propensity to use social media, especially Facebook;
- The large regional diaspora and its strong potential to support cause marketing, donation, and charity-based initiatives;
- A growing entrepreneurial ecosystem favoring the promotion of growth-oriented enterprises;
- The potential of regional mobile-based and online banking platforms.
The first study to focus on developing crowdfunding in the region, the infoDev report was funded with the support of the government of Canada through the Entrepreneurship Program for Innovation in the Caribbean, which aims to grow Caribbean businesses and the regional economy.
High internet penetration rates
Internet and Facebook usage in the Caribbean is estimated by Internet World Stats to be at 44% and 25% respectively. The report suggests that with such a relatively high penetration, this market segment with a little encouragement could be further engaged to optimize and leverage the mobile and internet banking platforms that are on the rise in the region.
“Currently persons remain hesitant to make effective use of these facilities due to the lack of knowledge and lack of trust,” Raymond said. “Banks’ furtherance of public or client education with special emphasis on security and incentive programs could help to overcome these issues and drive traffic to these platforms.”
The sizable Caribbean diaspora across the United Kingdom and North America sends remittances to the region at levels that significantly increase the gross domestic product of several Caribbean countries. The report recommends leveraging this group by facilitating access to financing and adding crowdfunding education and awareness-building opportunities to existing engagement efforts.
Benefits to entrepreneurs
Caribbean entrepreneurs have long complained about access to capital through traditional banking institutions. These difficulties have led them to explore more potentially accessible modes of financing such as crowdfunding and angel investing. There are several advantages to using crowdfunding to finance businesses, explained Raymond.
“Crowdfunding does not require the detailed level of documentation, collateral, cash flow, and other rigorous requirements as do banks,” he said. “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 program. It could take as little as six weeks to three months to mount an effective campaign. Plus, once the campaign is successfully concluded funds are made available almost immediately with little or no hassle.”
There are however a few challenges, among them legislative. If entrepreneurs use platforms that are based overseas, they are required to register their companies in that jurisdiction to meet legal and compliance requirements. “The gains to be made by going through the process could easily make up for the major investment costs associated with registration compliance,” Raymond said.
Karlene Francis, operations officer at the World Bank Group, says that with enhanced user capability, stronger social networks, great product and service ideas, compelling stories, the political will, a strong legislative and compliance framework, and a bank of a few good success case studies, crowdfunding could become a more valued vehicle for accessing funds for serious growth-oriented Caribbean firms.
The Caribbean is renowned for its wealth of young enterprising entrepreneurs who if guided properly and effectively engaged are not afraid to start or experiment with new ideas. The regional ecosystem for entrepreneurship is also strengthening.
“Many of the entrepreneurs fit the profile of early adopters; hence, by enhancing their capacities in the art of crowdfunding there should be an even stronger interest,” said Francis, who supervised the study. She also spearheaded a World Bank initiative in 2016 to launch an intensive eight-week massive open online course in crowdfunding for some 244 Caribbean participants, which was oversubscribed.
Easy access to best practices
There is a host of international best practices which the region easily can adopt, making it unnecessary to reinvent the wheel, Francis said.
“The study is timely and adds significant value to regional policymakers as it provides the empirical evidence and a clear guide for a nurturing crowdfunding environment for the Caribbean,” she said. “We are pleased that we were able to make this study possible and we hope that the main actors such as the private sector, legislators, enabling entities, and entrepreneurs will seize the opportunity to embrace the recommendations as many businesses, communities, and the wider region will benefit.”
Ultimately, as the report posits, “it will also help to boost early stage capital markets, entrepreneurship, creativity, economic growth, and employment in the region.”