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Current trends in the world of economic funding and investment have revealed exponential growth with regard to crowdfunding. Crowdfunding works by taking small sums of capital from a variety of people in order to fund up and coming business ideas and projects. Crowdfunding campaigns have proven to be very successful by raising funds without the upfront fees. By using online platforms to promote your business venture, crowdfunding allows you to build up a repertoire of networks of people whilst attracting media attention and potential investors/entrepreneurs.
One successful company that has taken advantage of crowdfunding is BorrowABoat which is a boat charter marketplace offering 35,000 boats globally and whose services is available in 65 countries. This rental marketplace has recently completed its third crowdfunding round, raising £1.1 million and as a result, earning a total of around £4.8 million. By interacting with potential consumers in this way, BorrowABoat has been successful in not only getting them to financially invest in the company, but also become emotionally tied to it.
With crowdfunding bringing such success to countries like the United Kingdom, it begs the question if it would be equally as well received in countries like Nigeria. With North America, Europe and areas of Asia showing impressive growth, African regions appear to be lagging behind. This could be due to the fact that although Nigeria has the ability of developing into the heart of crowdfunding in Africa, there are a whole host of challenges which could hinder the progress of this method of financing. These difficulties could involve matters of regulation, a deficit of adequate awareness on top of the issue of fraud and corruption.
Recently, there has been an upsurge in crowdfunding platforms in Nigeria relating to business economic needs. Some platforms used in Nigeria include Kickstarter, Indiegogo, Patreon, LendingClub, Porkmoney, Farmcrowdy, ThriveAgric, with GoFundMe being one of the most popular, among others. Crowdfunding in Nigeria can be also used to raise funds for personal financial emergencies, medical emergencies or for charitable purposes. This is usually done via internet platforms and through social media platforms as it has proven to be the quickest and fastest way to reach a larger number of people in the country.
In Nigeria, there is a pressing need to cultivate an environment where crowdfunding can thrive. In this context, the provisions of the Companies and Allied Matters Act and the Investment and Securities Act need to be adjusted to allow crowdfunding of private companies. In this regard, the Rules on Crowdfunding 2021 is a step in the right direction as it seeks to regulate crowdfunding in Nigeria. This should urge new startups to come into view as well as support small and medium scale businesses. In this sense, crowdfunding platforms may help to kick-start organisations in Nigeria as a country with millions of young business people with a fast growing population, and with a lot of internet users.
Moreover, although various crowdfunding platforms are appearing in Nigeria including donation, lending, equity and reward, the country has not put in place thorough regulations in place to manage them. Although rules were put in place to regulate crowdfunding in 2020, the government has still failed to provide a legal framework that will protect potential investors from fraud and corruption.
This is especially concerning as Nigeria has an elevated rate of internet fraud. These rules included one that states a company should have a minimum of two years track record before it can be considered for crowdfunding. Although donation and rewards focused crowdfunding options are not directly impacted by these rules, it would be wise to consider placing a limit on certain donations, for example if it was being pursued for a political agenda.
Furthermore, crowdfunding has soared in popularity in countries like the United Kingdom which is partially due to the fact that the public and potential investors are in the loop with regard to its benefits and impact. However, in Nigeria studies have revealed that there is a widespread lack of knowledge and awareness with regard to the concept of crowdfunding. In fact, a large bulk of the population fail to name at least one crowdfunding platform. The limited success of crowdfunding in Nigeria mostly derives from charity related campaigns in which they avoid using a crowdfunding platform and instead opt for donating via the television.
For the levels of crowdfunding to go up in Nigeria, it will have to follow in the foot steps of other countries and begin spreading awareness through various social media platforms. By using such platforms as Facebook, Instagram and Twitter to engage the public and entrepreneurs, it should create a widespread understanding amongst the Nigerian public.
In conclusion, crowdfunding has become a powerful alternative for non-traditional financing practices in recent years which has been aided by the advancement of technology and the growth of social media.
For more than a decade, crowdfunding has been implemented as a method early-stage financing. With the amount of internet users expected to grow tremendously, in the future Nigeria should witness its companies following the example of other countries in the world by using crowdfunding. Indeed, with a population as big as Nigeria, if changes are made and regulations are imposed with relation to crowdfunding, the country should see a massive shift in those opting to use this financial form of funding for their businesses.
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