Ghana’s SEC to introduce crowd funding to boost access to capital for entrepreneurs

Ghana’s SEC to introduce crowd funding

GHANA –Securities and Exchange Commission of Ghana has revealed that it is in an advanced stage of introducing crowd funding in the West African nation to boost entrepreneur access to capital.

The capital markets regulatory institution said that it expects to have established a framework for its commencement soon and hopes to have it up and running, backed by the requisite legislation as early as next year.

This it said was despite the inevitable delays in developing it caused by the impact of the COVID 19 pandemic.

Crowd funding is a relatively new means of sourcing both debt and equity financing for promising start-up and early-stage private enterprises.

 Crowd funding is the use of small amounts of capital from a large number of individuals to finance a new business venture.

It makes use of the easy accessibility of vast networks of people through social media and crowd funding websites to bring investors and entrepreneurs together.

 It thus has potential to increase entrepreneurship by expanding the pool of investors beyond the traditional circle of owners, relatives and venture capitalists, through a channel that is much more informally structured than the Ghana Stock Exchange and even the Ghana Alternative Market.

Crowd funding would be especially helpful to micro, small and medium-sized enterprises, who could use it to raise needed finance quickly from investors willing to put their money into promising new enterprises without going through time consuming regulatory processes.

Emmanuel Ashong- Katai, SEC’s head of policy, research and IT explains that the framework being designed by SEC aims to ensure that investors are protected from fraudulent entrepreneurs and would enjoy some level of good corporate governance.

SEC’s regulatory framework requires that specialist financial firms will be licensed to provide crowd funding services.

These firms will focus on bringing together potential investors and deserving entrepreneurs, and ensuring that beneficiary enterprises are managed responsibly so as to meet their obligations to crowd-investors.

If properly implemented, crowd financing has the potential to transform the MSME landscape in Ghana, which is dominated by enterprises that lack access to adequate funding from formal financial intermediation sources such as banks and the stock exchange.

 While the microfinance industry was established to solve this problem, a combination of excessively high lending rates and very short loan tenors, has limited its uptake by MSMEs.

The terms of micro-finance credit have in other instance led to repayment defaults and consequent loss of collateral ultimately culminating in total business failure.

Crowd financing, however, will offer low cost, long term capital in the form of equity to MSMEs allowing them to grow and flourish.

Even debt financing would be offered at much lower cost than through micro-financiers.

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