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

2 Suzanne Wisse-Huiskes
 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

3 Suzanne Wisse-Huiskes

Introduction
This report is published by the
CrowdfundingHub to review and assess
the development of the crowdfunding
sector in Nigeria. Until now this
publication has been the only West Africa
focused assessment of crowdfunding.
The report is researched and written by
MatchBox Consultancy and follows a
method using a mixed methodology of
literature review, an extensive range of
interviews, data collection and analysis
and survey based content. Worldwide,
crowdfunding is said to have raised 34,4
Billion USD in 2015. A fraction of this has
been funded in Africa, 83,2 Million USD.
This report provides an insight into how
Nigeria has reacted to this trend and how
the market is developing.
Crowdfunding can be a powerful tool for
social change in developing countries. It
enables entrepreneurs to find capital. It
enables political movements to engage a
large crowd. It enables artists to market
and sell their work. And crowdfunding
enables non-profits to gain support from
people with small donations.
Crowdfunding is a form of alternative
finance. It provides access to capital for a
segment of the population that cannot
access it through traditional means. In
Nigeria, Africas largest economy and
home of millions of young entrepreneurs,
crowdfunding could be a great tool to
boost organisations and individuals.
However, crowdfunding is yet to be fully
embraced.
What is crowdfunding? In short,
crowdfunding is an Internet- enabled way
for organizations to raise money (funding)
in the form of either donations or
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CROWDFUNDING POTENTIAL FOR NIGERIA 2017
investments from a large group of people
(the crowd). This new form of capital
formation emerged in the wake of the
2008 financial crisis largely because of
the difficulties faced by artisans and
entrepreneurs in raising funds. With
traditional banks less willing to lend,
entrepreneurs started to look elsewhere
for capital.
Crowdfunding began as an online
extension of traditional financing by
friends and family: communities pool
money to fund members with business
ideas. This exciting phenomenon is
spreading across the world. A 300%
growth was established in the last years,
predominantly in the US and Europe.
In Nigeria, a handful of crowdfunding
platforms are online. This is extremely
limited for Africas first economy. The
crowdfunding ecosystem is generally built
on availability of Internet, social media
and the ability to transfer funds in a
standard based way, with mobile
payments and online funds transfers.
Regulation and trust are also a big factor.
The goal of this report is to determine the
crowdfunding potential for Nigeria and to
add to the discussion on crowdfunding in
Nigeria and West Africa. It is intended to
be a practical document for those
interested: crowdfunding platforms,
investors, entrepreneurs seeking funding,
regulators and other potential
stakeholders. The aim is to advance the
field of crowdfunding as a part of
Alternative Finance, as an alternative to
traditional funding from banks and
governments. Nigeria is a huge market
with an incredible amount of potential if
one gets the formula right.
 CROWDFUNDING POTENTIAL FOR NIGERIA 2017

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 Africas 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.

5 Suzanne Wisse-Huiskes
 CROWDFUNDING POTENTIAL FOR NIGERIA 2017

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

6 Suzanne Wisse-Huiskes

I. What is crowdfunding?
Crowdfunding is an Internet enabled way
for businesses and other organizations to
raise money in the form of either
donations or investments from multiple
individuals. Crowdfunding makes use of
the easy accessibility of vast networks of
friends, family and other supporters
through social media websites like
Facebook and Twitter. This new form of
capital formation emerged in an
organized way in the wake of the 2008
financial crisis largely because of the
difficulties faced by artisans,
entrepreneurs and early-stage enterprises
in raising funds. With traditional banks
less willing to lend, entrepreneurs started
to look elsewhere for capital.
Crowdfunding began in the US as an
online extension of traditional financing
by friends and family: communities pool
money to fund members with business
ideas. In less than a decade,
crowdfunding has gained traction in a
number of developed economies,
including Australia, the United Kingdom,
the Netherlands, Italy, and the United
States.
Crowdfunding takes advantage of crowd-
based decision-making and innovation,
and applies it to the funding of projects or
businesses. Using social networks, social
profiles, and the viral nature of web-based
communication, individuals and
companies have raised billions of dollars
in debt, equity, and donations for projects
over the past five years. It has emerged
into a multi-billion dollar industry.
Types of crowdfunding
A distinction can be made between the
following three main crowdfunding
models
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CROWDFUNDING POTENTIAL FOR NIGERIA 2017
1. Equity
Equity crowdfunding is focused on
providing equity financing to companies.
In this model the company will attempt to
raise capital from a large group of small
investors (the crowd) instead of a small
number of large investors. In exchange for
the investment, the crowd will get a
portion of the shares of the company.
2. Lending
In this model the organization or company
will borrow money from the crowd. The
details of the loan such as payback
period, return, instrument (e.g. bond), etc.
is defined by the fundraiser and the
platform. Microfinance is a part of this
model
3.Donations/reward
The project collects donations from the
crowd, while the crowd does not receive
any financial benefit in return. The
donations can be for non-business
purposes including philanthropic, cultural
or community-based projects. The reward
model for donors will usually be in the
form of non-financial rewards.
Crowdfunding has numerous benefits.
Ultimately, there are millions of people
giving their money over the internet to
people they have never met. They trust
that they get their just returns. This
enables entrepreneurs, musicians, charity
workers and others to tackle traditional
boundaries to financing in their country to
bring products and services to market in a
collaborative way. And that is what is key
for a developing market such as Nigeria.
 CROWDFUNDING POTENTIAL FOR NIGERIA 2017

II. State of crowdfunding in Nigeria

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

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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 CROWDFUNDING POTENTIAL FOR NIGERIA 2017

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

9 Suzanne Wisse-Huiskes

A. Technology
The first key factors that facilitate
crowdfunding in a developing country are
technology and education. Strong social
media market penetration and Internet
usage are necessary to control
demographic and technology trends to
drive collaboration and cultural shifts. The
most important difference between
traditional friends and family finance and
crowdfunding is the usage of social
media to broaden the reach of the
fundraising campaigns and to use better
measurement tools.
In Nigeria, a little over half of the
population uses the Internet v , however
few people use a laptop to access the
Internet. They use their smart phone
instead, as it is cheaper and more
effective; Wi-Fi is scarce whereas 3G is
widely available in Abuja and Lagos, the
commercial capital. The level of mobile
smartphone penetration is not a particular
high percentage (30%), however has a
high growth in 2015. This growth is due to
the young population (a shocking 60% is
younger than 25 years old vi ). A
smartphone is mostly used for social
networking. Social media adoption in
Nigeria is increasing exponentially over
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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CROWDFUNDING POTENTIAL FOR NIGERIA 2017
Nigeria boasts over 97 million mobile
Internet users that have activities online.
Yet, as big as the Nigerian tech landscape
is, getting customers to pay online is still
a major obstacle for ecommerce. The
countrys two largest online shopping
companies, Jumia and Konga, might have
failed if not introducing its cash on
delivery payment option, which is the
preferred payment for the majority of the
online transactions on these stores. Many
Nigerians see online payments as
something that could easily be
manipulated and succumb to fraud. This
lack of trust is further supported by the
non-existence of any legal framework that
protects investors against fraud reports.
Summary
The outcome of the survey on Technology
states that mobile technology is seen as a
mechanism for communication and
collaboration by most Nigerians. The
country is ready to use these tools to
build communities of engaged
entrepreneurs and investors, so that as
the industry starts to develop, they can be
connected. Crowdfunding platforms can
use the power of social media to promote
their campaigns.
Suzanne Wisse-Huiskes
 CROWDFUNDING POTENTIAL FOR NIGERIA 2017

B. Culture of Entrepreneurship

Culture of entrepreneurship is another including Co-Creation Hub, accelerators

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

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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 CROWDFUNDING POTENTIAL FOR NIGERIA 2017

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 SECs 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

12 Suzanne Wisse-Huiskes
 CROWDFUNDING POTENTIAL FOR NIGERIA 2017

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 dont 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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 CROWDFUNDING POTENTIAL FOR NIGERIA 2017

III. Crowdfunding Potential for Nigeria in 2017

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

14 Suzanne Wisse-Huiskes
 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 NGOs. 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).

15 Suzanne Wisse-Huiskes