TANZANIA is heading towards having crowdfunding initiative to bridge financing gaps for Small and Medium enterprises (SMEs) while reducing market risks and building investors’ confidence.
The crowdfunding is another effort to back up the development of the DSE Enterprise Acceleration Program (DEAP) and ENDELEZA programmes, both aimed at preparing SMEs for public and private capital while reducing chances for uncouth people to con the public.
The Capital Markets and Securities Authority (CMSA) last week published a draft of the Crowdfunding Guidelines where an operator can only raise up to 150,000 US dollars (345m/-) per project, within 12 months period, and can raise a maximum of 300,000 US dollars (690m/-) from one crowdfunding platform.
Alpha Capital Head of Research and Financial Analytics, Imani Muhingo, said regulating the crowdfunding space, was another step by the regulator to bridge the financing gap that SMEs face.
“The guidelines are welcome, especially after a recent series of ‘ponzi’ pyramid schemes that mostly use digital platforms to con the public.
“The CMSA is attempting to solve this by licensing Crowdfunding Operators who shall have the primary responsibility to carry out due diligence on prospective issuers,” Mr Muhingo told ‘Daily News’ yesterday.
Crowdfunding is a method of raising capital in minimal sums, from a large number of individuals, mostly through digital platforms.
The platform has taken advantage of the modern network of social media, and some from the development of specific crowdfunding sites and platforms, for outreach to a large network of investors.
Zan Securities said in its weekly Market Wrap up the crowdfunding operations are expected to reduce market risks and build investors’, market players’ confidence and contribute to the development of the industry.
“Regulating crowdfunding is expected to unlock the potential of crowdfunding as an alternative source of financing,” Zan said adding “will protect investors from fraudulent funding activities will enhance market integrity and investors’ confidence in the capital financial sector”.
The operator of crowdfunding shall also monitor and ensure compliance by the issuer as well as carry out investor education programmes. The operator shall also perform due diligence on investors to avoid money laundering. The due diligence on investors shall, among others, comply with Anti-Money Laundering Authority requirements.
“The due diligence performed by the operator does not eliminate risks associated with the business on hand, the CMSA is keen to the categorisation of eligible issuers and investors interested in participating in the crowdfunding platforms,” Mr Muhingo said.
On the investors’ side, the participation of individual investors has been limited to 500 US dollars for a single project and not more than 5,000 US dollars in less than 12 months.
The guidelines showed eligible investors as high net worth investors, sophisticated investors, professional investors, venture capitalists and institutional investors.
“However, the guidelines have not clarified the qualifications for one to be a high net worth, sophisticated or professional investor. This is an initial draft, and the regulator is inviting comments from various stakeholders,” Mr Muhingo said.
Some sources report that the informal economy of Tanzania is almost half the GDP. This means that there are huge sums of capital scattered with retail investors that if channelled efficiently can minimize the shortage of capital facing many businesses.
Globally, the largest crowdfunding platform is GoFundMe which has already raised more than 15 billion US dollars from more than a 100million people since it was founded back in 2010.