Crowdfunding has emerged as an innovative funding mechanism for MSMEs, especially in the agricultural sector. Crowdfunding involves raising small amount of money from many people using an online platform. While crowdfunding is relatively well developed in more advanced economies, the phenomenon is gaining increasing popularity in Nigeria, especially in the agricultural sector where a number of start-up online platforms, such as Farmcrowdy, Pork Money and Thrive Agric have carved a niche in the market. These platforms help farmers raise funds for their projects and the farmers in turn repay the investing public based on the pre-agreed interest rate.
According to the CrowdfundingHub in their report, Crowdfunding Potential for Nigeria (2017), Nigeria accounted for between $7 to $8m out of the $83.3 million raised by the African crowdfunding market in 2015. 90% of this amount is attributed to peer-to-peer business lending and equity crowdfunding, while microfinance, donation and reward-based crowdfunding accounted for 10%. However, there is no specific regulatory framework in Nigeria for this emerging financial market, thereby exposing market participants to uncertainties and risk.
In March 2020, the Securities and Exchange Commission (SEC) published the “Exposure of New Rules to the Rules and Regulations of the Commission” which contained the proposed Rules on crowdfunding in Nigeria. The proposed Rules defined crowdfunding as “The process of raising funds to finance a project or business from the public through an online platform”. According to the proposed Rules, all “MSMEs incorporated as a company in Nigeria with a minimum of two years operating track record shall be eligible to raise funds through a Crowdfunding Portal registered by the Commission, in exchange for the issuance of shares, debentures, or such other investment instrument as the Commission may determine from time to time” (Section 2).
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