The Bank of Ghana has released a Policy on Crowdfunding. The Policy is to regulate what has “evolved from the localized collection of funds to support business ventures, or individuals in communities, to a global platform where funds are solicited through the internet, and social media for a similar agenda of funding projects” according to the central bank.
The practice of funding a project or venture by raising small amounts of money from a large number of people has been with us for a very long time. In our local setting, Crowdfunding was done without the employment of technology, but the advent of the internet, and by extension fintech platforms has necessitated the latest policy by the Bank of Ghana.
The central bank’s policy covers all four models of Crowdfunding; Donation, Reward, Equity, and Debt Crowdfunding.
Donation Crowdfunding
This model of Crowdfunding is mainly for charity projects. All of the appeals to raise funds for people suffering from ailments that require expensive treatment, brilliant but needy students who require donations from the public to be able to further their education, and similar initiatives will all fall under the regulatory oversight of the Bank of Ghana.
Reward Crowdfunding
Contributors in a reward-based Crowdfunding campaign are “given non-financial rewards such as priority access to a successfully launched service or product or event. Registration on a reward-based crowdfunding platform requires the ’’Know Your Customer’’ (KYC) information for both funders and fundraisers in the registration process. The fundraiser is also required to provide details such as the amount needed for a project to be advertised and any other project details as required by the platform.”
Equity Crowd-funding
Equity Crowdfunding is used to “raise funds for start-up businesses. Investors receive equity in the entity raising the funds or a share in its revenue. Depending on the type of business and its funding requirements, restrictions may be imposed as to how much a funder can invest and how much a fundraiser can raise. Fundraisers would be required to disclose such information as may be deemed necessary to enable investors to make informed decisions. The equity crowdfunding platform may or may not be actively involved in the promotion of the sale of shares.”
Unlike Donations and Reward Crowdfunding, Equity requires regulatory input from the “Securities and Exchange Commission (Sec)” says CEO of JA Capital, John Armah.
“Equity and Debt capital raised through the Crowdfunding modalities may be regulated by Sec when it issues its guidelines. We await same from Sec.” he disclosed.
Debt Crowdfunding
This model of Crowdfunding provides an avenue for lenders and borrowers to interact. Individuals are able to lend money to individuals or businesses through Debt Crowdfunding platforms. This is why it is also referred to as Peer-to-Peer lending.
Lenders receive interest on loans and are paid the principal, upon expiration of the loan or successful completion of the project for which the loan was obtained. This type of crowdfunding like Equity falls within the regulatory jurisdiction of both the Bank of Ghana and the Securities and Exchange Commission and would require regulatory approval from the two entities.
How Crowdfunding Works
Crowdfunding is a different way to raise money for good ideas. People are increasingly bypassing more traditional funding routes such as bank loans or grants and turning instead to the people around them and in their community to support their venture. It’s been around for centuries but the internet makes it possible to reach much bigger audiences than before.
Crowdfunding requires both the fundraiser and the funder to do due diligence on the platform before considering to raise funds or to fund a project on the platform. The funder has the obligation to further research the fundraiser’s profile. Due diligence entails thorough research on the platform, fundraiser and project review, project platform reviews, project articles and studies, seminars, and trade associations.
How the Policy Started
The idea to formalize Crowdfunding in Ghana was first mooted in Parliament by the Member of Parliament for the Ejisu Constituency in the Ashanti Region, Dr. John Ampontuah Kumah, who has since applauded the Bank of Ghana for instituting measures to formalize crowdfunding in Ghana.
“On Tuesday, February 2, 2021, I presented a paper on the floor of the house numerating how the state can tap into the potentials of the youth for national development. One of the points I highlighted was the need for measures to be taken to institutionalize crowdfunding in Ghana. I am therefore impressed with the swiftness exhibited by the Bank of Ghana in outlining a roadmap that ensures that we can now rely on the power of the internet to crowd pool funding for businesses,” Hon. Kumah said in a statement after the central bank’s release.
The Securities and Exchange Commission is expected to release its own guidelines on Crowdfunding now that the central bank has released this all-important policy. This serves as an important first step to help address the difficulty in raising capital for start-ups in Ghana.
