This was revealed in the report “Crowdfunding’s Potential in the Caribbean: A Preliminary Assessment,” commissioned and recently released by infoDev, a global innovation and entrepreneurship program at the World Bank Group.
Crowdfunding is the process of financing a project or venture by soliciting funds from a large group of people, primarily through the Internet. Crowdfunding and other forms of virtual alternative finance are flourishing around the world and in the Americas. A study conducted by the University of Cambridge Judge Business School and Chicago Booth School of Business indicates that this market reached 35.2 billion in 2016, of which 324 million was generated from Latin America and the Caribbean.
Caribbean entrepreneurs typically launch non-financial return crowdfunding campaigns, for example, donation of capital to a cause or charity, or rewards-based crowdfunding in which a contributor “prepurchases” an item in a crowdfunding campaign. Among the Caribbean’s most successful crowdfunding initiatives was the Jamaican Bobsled team, which used the platforms Indiegogo and Crowdtilt to fund their participation in the 2014 Winter Olympic Games in Russia — an effort which reaped over $155,000.
The first study to focus on developing crowdfunding in the region, the infoDev report was funded with the support of the government of Canada through the Entrepreneurship Program for Innovation in the Caribbean (EPIC) a CAD 20 million program aimed at growing Caribbean businesses and the regional economy. “This infoDev report is timely, given the demand for innovative access to finance solutions for SMEs in the Caribbean,” said Karlene Francis, Operations Officer at the World Bank Group who supervised the study.
The report notes that there are limited financial options available for businesses to grow in the region. Commercial bank loans are difficult to secure due to cash flow and collateral requirements, compounded by the informal nature of Caribbean businesses, which makes it difficult to effectively connect capital supply and demand. Data from Compete Caribbean indicates that access to finance is one of the main barriers and challenges to growing businesses in the region, with 30% of firms citing it as a moderate obstacle and 26% as a major and severe obstacle.
The report examines the critical elements considered to be the foundation of a well-functioning crowdfunding ecosystem in the Caribbean. These include enhancing user capacity, strengthening the regulatory framework, and optimizing technology.
With regard to user capacity, the report urges the provision of technical support to help entrepreneurs better use existing international crowdfunding platforms such as Kickstarter and Indiegogo. In 2016, the World Bank Group facilitated an intensive eight-week program in crowdfunding for some 244 Caribbean participants. A few participants launched their own crowdfunding campaigns shortly after the course ended in November 2016. For example, Natalie Mullin surpassed her target and raised CAD 8,446 on Kickstarter for her Taste Tea Naturals product.
As far as regional finance platforms are concerned, Barbados is home to VisionFunder, a pioneer in rewards-based crowdfunding and Pitch & Choose, a donations-based platform. In Jamaica, there is the JN Bank’s ISupportJamaica, a rewards-based crowdfunding website, and Jamaica Diaspora Connect portal, a public-private sector partnership which has raised over J$107,000 for various projects.
On the technological plane, the report observes the need to further strengthen and promote trust in online payment and electronic banking systems, while taking advantage of the relatively high use of the Internet and Facebook in the region — estimated by Internet World Stats to be at 43.7% and 25% respectively of the total population last year.
The report prescribes the coordination of regulatory effort across the Caribbean Community as well as with regional counterparts in North and Latin America. This would provide the region with an opportunity to align itself with international best practices best suited for small island developing states.
The report also recommends the further promotion of diaspora engagement in facilitating access to financing by adding crowdfunding education and awareness-building opportunities to existing diaspora engagement efforts. The sizable Caribbean diaspora across the United Kingdom and North America sends remittances to the region at levels which significantly raise the gross domestic product of several countries in the region.
“We hope that the major stakeholders in the regional entrepreneurial ecosystem who are involved with access to finance, namely the private sector, business enabler communities, governments, regulatory bodies and international institutions will embrace the report’s recommendations,” Francis said. “We encourage stakeholder collaboration to facilitate the growth of an enabling environment for crowdfunding, a valuable financing mechanism which can further spur the growth of Caribbean businesses and the regional economy.”
EPIC is a seven-year CAD 20 million Trust Fund Program funded by the government of Canada that seeks to build an enabling ecosystem for growth-oriented and sustainable enterprises across 14 CARICOM countries (except Haiti). The project development objectives are to contribute to increased competitiveness, growth and job creation in the Caribbean through the development of a robust and vibrant innovation and entrepreneurship ecosystem. EPIC has three core activity pillars: mobile innovation, climate technology, and women-led entrepreneurship. These pillars are complemented by an access to finance facility for Caribbean entrepreneurs and a skills upgrading and capacity development program for all ecosystem stakeholders. EPIC’s access to finance component aims to develop an innovative financing program for growth-oriented Caribbean entrepreneurs, the focus being to build a pipeline of investment-ready enterprises and to strengthen investors’ capacity to engage in innovative financing mechanisms such as crowdfunding.