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The Securities and Exchange Commission (SEC) of Nigeria’s ban on equity crowdfunding “is seriously slowing down” the introduction of crowdfunding in the country, says a new report.
The Crowdfunding Potential for Nigeria report released last month by the Crowdfunding Hub, says crowdfunding has significant potential in the country, but that the SEC’s ban issued in August last year has stifled the setting up of crowdfunding platforms.
The SEC believes that crowdfunding cannot be effective in Nigeria for now because of a lack of rules. Donation and reward-based crowdfunding are however excluded from the SEC’s regulatory remit.
This is despite a fast-evolving banking system which provides a promising infrastructure for crowdfunding in Nigeria, as well as a burgeoning entrepreneurial scene and a fast-growing population of 179 million.
‘Donation and reward-based crowdfunding should be fostered as a first step’
“To move forward, donation and reward-based crowdfunding should be fostered as a first step towards crowdfund investing,” says the report’s author Suzanne Wisse-Huiskes of MatchBox Consultancy.
Wisse-Huiskes, who lived and worked in Nigeria between 2014 and 2016, consulted with over 30 policy makers, NGOs, investors, and entrepreneurs in compiling the report.
She pointed out in the report that these types of crowdfunding have successfully paved the way for equity crowdfunding in other regions. The report says the African continent accounted for about $83.2-million in crowdfunding in 2015, with Nigeria accounting for between seven and eight million dollars of this.
At the start of this year Nigeria had one equity based platform, Malaik, launched in 2015. The landing page on its website asks those interested to leave their details to join a waiting list for the relaunch of the site.
The report notes that the lack of patent laws is another concern. It discourages entrepreneurs to share their business ideas online.
Wisse-Huiskes told Ventureburn that “to my knowledge, peer-to-peer lending platforms are also illegal”.
‘The SEC is looking at the crowdfunding rules in US and Canada’
“The legal provisions of crowdfunding are a big challenge to the organisation (SEC). However, they are looking for ways to go about it so that companies will enjoy the benefits of crowdfunding in the country as well,” says Wisse-Huiskes, who adds that the SEC is looking at the crowdfunding rules in US and Canada in order to ensure an enabling legal and regulatory framework.
She said equity crowdfunding could prove to be an expedient way for many struggling entrepreneurs to raise capital, since they are considered as high risk to banks.
Derin Fagbure, a director of donations-based platform FundMyP, agreed, saying crowdfunding can help thousands of Nigerian business owners to access finance.
She said business owners often battle to obtain finance from banks which are reluctant to advance small loans which they view as more likely to be defaulted upon. Those that approach the government for funding often have to battle bureaucratic procedures, she added.
However Fagbure said scams on donation-based platforms are common, meaning crowdfunding platforms often have to battle to win the trust of the public by making them more aware of what crowdfunding platforms do.
Attempts to get comment from the Securities and Exchange Commission by time of publication proved unsuccessful.