In this second blog of our series on “Crowdfunding: Lessons Learned from Practitioners”, we share the findings of an in-depth assessment conducted in Ghana to understand the MSME landscape in the Ashanti and Western regions.

UNCDF has supported its partners in this exercise to understand the context and inform the crowdfunding models. The objective was to adapt the models and services to the realities and need of targeted groups, including youth, women as well as diaspora groups whilst leveraging digital technology to address constraints in access to finance.

In the previous blog, UNCDF showcased two crowdfunding business models supported by the GrEEn Project in the Ashanti and Western regions of Ghana: the crowdlending and donation-based model. Interesting findings have emerged that helped in adapting the solutions. In Ghana, about 70 percent of businesses in the country belong to the informal sector; largely micro, small and medium scale enterprises (MSMEs). There are about 160,000 MSMEs in the country. Mobile phone penetration with smart phones stands at 113 percent and with the availability of 4G services, Ghana has one of the fastest internet connectivity in Africa. Internet penetration jumped from 5 percent in 2011 to over 33 percent in 2017. Unfortunately, the MSME funding gap in Ghana remains large, the gap from the formal sector is estimated at US$5 billion according to IFC’s SME Finance Forum in 2019 while the potential demand from the informal sector amounts to an additional US$4.8 billion.

Crowdfunding represents a huge potential to bridge that gap. UNCDF, with the support of the European Union under the GrEEn project in Ghana is driving innovation through digital solutions for small business financing by leveraging its network and partnerships with FSPs and Fintechs.

The objective of the market research was to reveal the constraints that MSMEs might face in their access to capital, the current barriers, the profile of potential beneficiaries as well as macro implications (e.g. regulatory framework). Through a mix of focus group discussions, desk research and key informant interviews, partners have identified new strategies (e.g. user acquisition, liquidity, marketing) that have informed the pilot phase. Here are some of the insights of the research conducted by Pezesha and few specific dynamics that are affecting the stakeholders in the regions with impacts on the crowdfunding business models:

• The service sector in the Ashanti region is the highest performing sector with a revenue of over US$7.2 billion (GH¢42 billion) followed by the industry sector, with the agriculture sector being the least performing sector.
• The Western Region on the other hand is characterized by a high performing industrial sector with over US$3.3 billion (GH¢19 billion) in revenue. The Western Region is one of the most industrialized regions in Ghana. This is a result of the vibrant crude oil industry that is coupled with the production of electricity from several power plants in various oil fields.
• An analysis of the research data from the two regions shows the type of MSMEs that would be interested in innovative digital solutions to access capital. These include MSMEs in high performing sectors of the economy, involved in wholesale and retail trade, repairs and maintenance, transportation and storage (Western region especially). Although these MSMEs represent the backbone of the regional economy, they still struggle in accessing capital.

UNCDF supported the consortium led by SIA with FundRaising Africa in further understanding the contexts in which these MSMEs operate. The research provided key information to adapt the crowdfunding solutions to their specific contexts. Five stakeholder segments were identified and interviewed namely: entrepreneurs, community members, crowdfunding contributors, members of the diaspora and financial service providers (FSPs). A total number of 100 people contributed to the exercise. The objective was to understand their challenges and constraints when accessing finance, especially during the COVID-19 crisis, and their willingness to opt-in a crowdfunding platform.

Through an in-depth study, UNCDF and its partners found that:

• The funding priorities of the community members and the diaspora varied slightly. Diaspora contributors were more likely to fund projects that support personal protection equipment (PPE) for health workers, job creation, education, and sanitation campaigns, while members of the community are more inclined to fund projects for non-health workers.
• Community members and entrepreneurs did not have a strong understanding of crowdfunding, with most having never heard of it before. The minimal understanding of crowdfunding amongst entrepreneurs and community members justifies the need to spend four weeks of the entrepreneurial training dedicated to crowdfunding. It also indicates that entrepreneurs must effectively communicate the concept of crowdfunding in their community-focused marketing campaigns. This also made clear that these campaigns should combine digital and non-digital channels to create awareness in the communities.
• Local FSPs were unfamiliar with crowdfunding. Given the novelty of a crowdfunding partnership to many of the FSPs engaged, there is a need to engage them from the beginning of the design process to ensure the product accommodates their risk-levels.
• There is significant interest from FSPs in collaborating on this project. Some FSPs see it as a source of new customer acquisition and an opportunity to reach a customer segment historically deemed too risky to consider for financing.
• There was a strong understanding of crowdfunding among members of the diaspora. Most members of the diaspora classify crowdfunding as an online digital platform used to raise funds for a project from multiple individuals. Half of the respondents indicated they have supported or made a donation through a crowdfunding platform before. This encourages a strong digital marketing approach to find supporters among diaspora groups.

These findings confirm there is a lot of momentum around crowdfunding as an alternative source of financing for young entrepreneurs, as well as interest of donors and investors looking to find alternative ways to invest in Ghana. This exercise also gave practical learnings on how to develop and finetune the business models pre-identified for the project:

1. Specific and adapted awareness campaigns need to be embedded in the implementation process, as there is little or no knowledge of such platforms at the regional level;
2. A combination of digital and non-digital channels needs to be used to ensure reach of different profiles within the community members and diaspora groups;
3. Specific training modules on financial management need to be provided to entrepreneurs and targeted MSMEs, who may not be familiar with formal financial services;
4. Specific coordination needs to be carried out to reach institutional partners and channel investments through the platform;
5. Clarity of terms and conditions is key to ensure credibility and usage of the platforms;
6. Continuous exchange with stakeholders, including regulators, is important to ensure compliance.

UNCDF is keen to pilot the platform while addressing the challenges listed above, and ensuring continuous adaptation according to user feedback, uptake and usage. Under the GrEEn Project, UNCDF and its partners aim at leveraging digital innovations to leave no Ghanaian behind.

Stay tuned for the next blog in the series “Crowdfunding: Lessons Learned from Practitioners” to know more about the pilot phase and see how entrepreneurs and investors are benefitting from the platform.