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Crowdfunding in East Africa

East Africa requires regulatory framework and attention to harness the potential of crowdfunding while addressing consumer risks, says new report in partnership with the Cambridge Centre for Alternative Finance.

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Crowdfunding in East Africa currently has no specific regulations or policies, and these channels require regulatory attention in order to harness potential benefits while addressing consumer risks, according to a new report issued in partnership with the Cambridge Centre for Alternative Finance at Cambridge Judge Business School.

The report highlights key regulatory and policy areas that are essential for market development in Kenya, Uganda, Rwanda and Tanzania, while drawing on insights and experiences from the UK, USA, Malaysia, New Zealand and India. It proposed a set of recommendations to encourage the growth and development of crowdfunding models in East Africa, including development of a database of existing regulator-acknowledged platforms and a regional regulatory laboratory to guide crowdfunding businesses through regulatory processes.

The report, entitled Crowdfunding in East Africa: Regulation and Policy for Market Development, was published by the Financial Sector Deepening Africa (FSD Africa) in partnership with the Cambridge Centre for Alternative Finance and Kenya-based law firm Anjarwalla & Khanna.

The report found that in developing and emerging markets, an estimated $430 million was provided to SMEs, individual consumers and various organisations via online crowdfunding channels in 2015. In Africa alone, over $250 million was raised via various alternative finance channels in the period 2013-2015, and East Africa was the continent’s largest alternative finance regional market.

“The East African crowdfunding market is nascent, but shows signs of growth,” said Joe Huxley, the Regional Strategies Coordinator at FSD Africa. “Creating the right rules and incentive structures to ensure this growth is carefully managed, and produces positive development gains for East Africans, is a key task. Good work is already underway. Together with its partners, FSDA will stand ready to support leading East African regulators at each step of this journey.”

Kieran Garvey, the Policy Programme Manager at the Cambridge Centre for Alternative Finance, Cambridge Judge Business School said:

“One of the most interesting findings emerging from this study is that while no specific regulations currently govern different types of crowdfunding in East Africa, there are rules and regulations that are still relevant to crowdfunding platforms – particularly for equity and debt-based alternative funding models. We hope this report raises awareness of these existing relevant regulations in East Africa.

“At the same time, this report highlights some of the common themes and insights emerging from other countries, outside Africa, in terms of how financial regulators are responding to the growth and development of various crowdfunding and alternative forms of finance. Our team look forward to working with East African regulators to build upon the outlined recommendations.”