How Crowdfunding Boosts Africa’s Economy

The potential of crowdfunding to transform Africa’s economic landscape is huge. It is not impeded by the factors that have kept 56% of the sub-Saharan adult population from accessing traditional financial services [1].

Some of the reasons for this are: strong community spirit, digital technology penetration and frustration with how traditional finance excludes low-income communities. 

Let's see how it's doing so far. 

Over $80 million raised in a year 

Although crowdfunding in Africa is still in its early stages, it infused $80 million into the economy in 2022. That's 50% more than was raised in the previous couple of years [1].

South Africa, Nigeria, and Kenya are leading Africa’s crowdfunding efforts, in that order [2]. Forecasts project that crowdfunding in sub-Saharan Africa could reach $2.5 billion by 2025 [3].

Of the 201 crowdfunding campaigns that took place in South Africa between 2019 and 2022, only 21% succeeded, raising a total sum of $749,149 [2]. Within the same period, there were 147 projects across Nigeria with only a 1% success rate that raised $22,779 [2]. 

Kenyan crowdfunding brought in $927,063 between 2019 and 2022. However, the country only had 86 projects during that period.

Creative projects attract the most donations 

The African creative industry, typically snubbed by traditional financing, is catching a break with crowdfunding. Film-making, photography, art, and publishing projects get the most funding, especially when they offer rewards [2].

Budding South African film producer Meg Rickards raised 30% ($8665) of the budget of her feature film, Whiplash, within three months [4]. 

Businesses struggle somewhat due to regulations pushing back on equity crowdfunding and the logistics of reward-based crowdfunding. South African SMEs have the advantage that equity crowdfunding is legal in the country.

Let's see some crowdfunding success stories

To enhance her business with a toolbox, a mechanic raised $17.55 [3]. She offered oil changes to donors as a reward.

A meat distribution business also raised $8,776 to purchase refrigerated vehicles and inventory [3]. In return, they sent meat hampers to donors.

Sheena Paulus, the owner of Tri Toad Nursery, was able to crowdsource R100,900 to finance a commercial seedling nursery project in June 2022 [5].

Drifter Brewing Company, a craft beer producer, raised $175,521 from a pool of 235 investors. In exchange, the investors collectively received a 12% equity stake [3].

Crowdfunding is building resilient communities in Nigeria 

The concept of crowdfunding enterprises is slowly growing among Nigerians. However, the most attention seems to go towards strengthening socio-economically vulnerable communities and groups.

For example, RebuildX Africa is a crowdfunded initiative helping renovate essential infrastructure in slum communities.

Final thoughts 

Crowdfunding can improve the financial resilience of local African communities. It provides financing for entrepreneurs often excluded from traditional financial channels. It also provides an escape from informal financial systems with exploitative interest rates and practices.

References 

[1] Alima, A. L. N., Moubitang, A., & Rolande, B. (2024). IMPACT OF CROWDFUNDING ON FINANCIAL INCLUSION IN AFRICA: THEORITICAL AND PRAGMATICAL APPROACH. ResearchGate. https://www.researchgate.net/publication/380005435_IMPACT_OF_CROWDFUNDING_ON_FINANCIAL_INCLUSION_IN_AFRICA_THEORITICAL_AND_PRAGMATICAL_APPROACH

[2] Ismaila, B. (2023). The state of crowdfunding in Africa and its potential impact: a literature review. International Journal of Research in Business and Social Science, 12(5). https://www.researchgate.net/publication/372730558_The_state_of_crowdfunding_in_Africa_and_its_potential_impact_a_literature_review

[3] Crowdfunding emerging as financing source for African entrepreneurs. (2022, August 4). Africa Renewal. https://www.un.org/africarenewal/magazine/july-2022/crowdfunding-emerging-financing-source-african-entrepreneurs

[4] Mulligan, G. (2015, June 18). Africa discovers the power of crowdfunding. BBC News. https://www.bbc.com/news/business-33100535

[5] Bank, S. (n.d.). Tri Toad Nursery, crowdfunding beneficiary. https://www.standardbank.co.za/southafrica/business/bizconnect/success-stories/client-success-stories-hub/tri-toad-nurserys