Crowdfunding in Kenya is growing. As it is doing in other parts of the World. At the same time, it has always existed in this country by the way of Harambee.
Is it viable? Proponents, like the World Bank, consider it a tool to fill gaps in financial inclusion. It can support credit-starved entrepreneurs as many highlighted success stories, the world over, have shown. But detractors consider it a fad.
One argument from their end is that crowdfunding is not only last-resort but also one for sub-standard investments. A UK finding titled ‘Where Are They Now‘ found that most companies that receive money in this manner go on to fail. Still, these have to be put into context.
Crowdfunding in Kenya almost exclusively means raising money, through collective effort, on a donation-basis. You contribute money to a cause out of your good nature. This is only one form of crowdfunding. There are many more, including:
- reward-based crowdfunding
- equity-based crowdfunding
- revenue-sharing crowdfunding
- debt-based crowdfunding (p2p)
At last look, there are over 600 crowdfunding platforms across the globe. The internet is credited for this explosion. It is described well as the “social media version of fundraising.” In Kenya, one has to add adoption of mobile phones considering the most renowned such platform is sms-based.
You can read our interview with Joan Marwa – She is part of the team who started a crowdfunding platform in Kenya, Grow My Hustle, in response to neglect of the creative industry.
Crowdfunding is considered a good way of raising seed capital. More so, for social entrepreneurs. It can be useful in pooling people to solve problems in their micro-economy. We know in Nairobi, for instance, playgrounds are disappearing. That is a cause.
This platform also doubles as a marketing or PR drive. This is important for new businesses that are only launching their product or services. It can save time and cost of going out into the world to get feedback on how good or how bad a business product is.
One of the best practices in fundraising via crowdfunding is choosing the right audience. This means choosing the right platform, selling your idea well, setting reasonable goals and having a wide-enough social network to ignite your campaign.
Why it doesn’t work
The importance of social reach for a successful crowdfunding campaign has come under criticism. It does not reward the cause but it rewards the size of social network. Crowdfunding is also an easy escape from systemic failures. In this case, the problem of inadequate access to credit by many small business owners.
It can be a way to escape criticism of a business idea. In as much as there is feedback, more often than not, it is not from a professional basis.
Crowdfunding also requires a lot more resource input than most entrepreneurs consider. It is not a set-and-forget thing. You have to be involved as you would any other exposure-campaign. But this is at the expense of other business activities, and considering your chances of success it is a big choice to make.
In the World Bank’s ‘Crowdfunding in Emerging Markets: Lessons from East African Startups‘ study, an entrepreneur said on crowdfunding campaigns, “You eventually feel like you lose out on normal business operations, management, and engagement with the company.
“Sales go down and you generally lose income as you put more time into the crowdfunding process.”
These are challenges across board. But there are unique reasons on why crowdfunding in Kenya stands on shaky ground. How many entrepreneurs do you know who have used such a platform in the country, or actively consider it?
The number one challenge crowdfunding in Kenya faces is the lack of clear regulation. It’s classed among micro-finance and remittances, meaning a lot of concerns around it cannot be addressed.
Think of debt and equity based crowdfunding. What is to happen if a cause does not reach its goal? Do you get refunds? What if a business you funded defaults on paying back debt, what happens? Do you break the knee-caps of the founders? These are questions about trust – because scams are common in Kenya.
The ICT Cabinet Secretary, Joe Mucheru, begs to differ. “Just because they are not written down in some act doesn’t mean there are no laws. Remember, crowdfunding is similar to the physical fundraisers.”
Is this helpful? Kenya would do well to enact laws that define or limit the parameters of crowdfunding as the US has done. It’s obvious that for crowdfunding in Kenya to be viable, debt and equity forms of it must be allowed to bloom.
Over 70% of the world’s crowdfunding comes in these forms while in Kenya, two-thirds is donation based funding. Many complain that Kenyans make “safe” or “easy” investments like real estate and retail at the expense of innovative entrepreneurs struggling to finance their work. Equity and Debt fundraising is a low-hanging fruit in directing this urge to invest into sectors that can truly change the country.
One must admit that common-good initiatives don’t work well in Kenya. Perhaps it is a cultural issue, perhaps it is not. People will always want something in return and, as we’ve seen, there are ways to realize these win-win scenarios through crowdfunding.
