Championing Crowdfunding in Ghana: Critical Lessons and Significant Milestones after Three Years of Implementation under the GrEEn Project

  • June 09, 2023

  • Ghana

In Ejura-Sekyedumase, in the Western Region of Ghana, smallholder women farmers no longer worry about low yield, post-harvest losses, limited access to farming information and farming on marginal lands with depleted resources. They leverage an innovative digital agricultural crowdfunding platform that provides them access to input financing, trade financing and capacity building in agriculture best practices using funding sourced in key diaspora corridors. The platform is an initiative of Grow For Me, a partner on the UN Capital Development Fund (UNCDF) GrEEn Project, a four-year action from the European Union, the Embassy of the Kingdom of the Netherlands in Ghana, under the European Union Emergency Trust Fund (EUTF) for Africa.

UNCDF has pioneered innovation in the crowdfunding sector in Ghana for the past three years. In addition to Grow For Me, GrEEn has also supported crowdlending solutions (connecting investors with excess funds to SMEs who need financing) with Pezesha, and donation-based crowdfunding with Chango by IT Consortium, FundRaising Africa and Crowdfrica. Through UNCDF's funding and technical assistance facility, Ghanaian crowdfunding providers from the private sector have tested alternative financing to serve excluded groups from the Ashanti and Western regions. This is to enable them to unlock domestic and diaspora funds to access capital to grow and expand their business and fund local climate-resilient infrastructure development. Overall, the current crowdfunding interventions are promising to mobilize private sector financing for individuals and communities in the target areas. 

What worked and what did not work? This two-part piece aims at collecting lessons learned from project implementation to inform the ecosystem. Referencing the "Lessons learned from practitioners: Crowdfunding in Ghana" series launched in 2020 with findings from initial engagements with stakeholders namely: providers, MSMEs and regulation. After three years, this two-part piece will revamp such findings and add insights collected through engagement with private and public sector providers that are shaping the sector.

Crowdfunding: Access to Finance for MSMEs
Crowdfunding as a means of financing projects and initiatives through online platforms offers several benefits. These include access to a broader pool of potential investors, increased exposure for projects, the ability to test the market, gather feedback from potential customers and offer financial lifelines to individuals and groups usually excluded from formal or traditional forms of financing. In Ghana, financing community projects through communal support (similar to formal crowdfunding) is an age-old practice. However, the non-formality of this method means higher risk and less accountability, thus making it unappealing.

Crowdfunding has enormous potential as an alternative financing mechanism to bridging local financing gaps when delivered within the right innovation and regulatory environment. With its mandate under the GrEEn Project to create greater economic and enterprise opportunities for youth, women and MSMEs, UNCDF has since the take-off of the project, explored several crowdfunding solutions to reach scale, ensure sustainability and contribute to building an inclusive digital economy in Ghana.

Through funding support to pilot crowdfunding innovations, technical assistance to build private partners' capacities and collaboration with regulatory bodies to formulate policies that boost innovation, UNCDF has tested various crowdfunding solutions aimed at addressing the needs of target groups under the GrEEn project. The insights and lessons from piloting these interventions have contributed to the body of knowledge on crowdfunding in Ghana in different aspects. These include how new crowdfunding models could be designed to leverage diaspora networks, fill financing gaps for MSMEs considered too risky by traditional financing sources and create greater awareness of crowdfunding as an alternative financing mechanism.

The lessons on the crowdfunding journey are numerous and here we share insights on testing three crowdfunding models: rewards, crowdlending and donation-based crowdfunding. Reward-based crowdfunding offers contributors a reward or product in exchange for their support. In the crowdlending model people lend small amounts of money to a company in exchange for a financial return stipulated in a loan agreement. While donation-based crowdfunding is a type of crowdfunding where people donate money to support a cause without expecting anything in return.

Initial Insights from Piloting a Reward-based model
Grow For Me (GFM), an innovative digital agriculture crowdfunding platform, connects investors to farmers and aggregators needing financing. By enabling interested people to participate in farming and commodities trading digitally, GFM is also helping to improve access to funding, reducing post-harvest losses due to a lack of ready markets and building up a crop of knowledgeable and economically independent farmers.

Since its inception last year, Grow For Me has effectively implemented its model in the two designated regions, leading to a significant user acquisition of 3,473, which surpassed the 2023 first quarter target of 970 active users by almost 300 percent. While uptake has been promising, UNCDF and GFM soon realized the importance of training and literacy for successful functioning of the crowdfunding model. GFM has intensified its capacity-building initiatives for farmers and aggregators, focusing on good agricultural practices and financial literacy. In addition to in-person training on financial literacy, Interactive Voice Response (IVR) has been introduced as an additional channel to complement existing efforts to build the financial capabilities of farmers and aggregators to access content anytime and anywhere in their local language. “The training on good agricultural practices has been of great benefit to me and my colleagues and has helped us to acquire new knowledge in farming techniques that have improved our yield.” says Comfort Asare, a farmer in the Western Region.

An integral aspect of this solution involves the crowdfunding of diaspora funds to fuel the model and finally fund the farmers. Thus, GFM employs different strategies such as targeting Ghanaian diaspora groups through events and project ambassadors to garner support and raise funds to support the trade and farm initiatives. The accomplished successes within this project, with GFM raising GHs 1.8m -US$160,332 (from domestic and diaspora) in a relatively brief period, emphasize the potential widespread impact that can arise from this crowdfunding model

Rewards-based crowdfunding seems a very promising business model and results are likely to be sustainable in the long run. However, challenges coming from the general context seem to pose some risks. These include local currency inflation that will reduce the appeal of such initiatives for diaspora members or the high fuel prices, resulting in a rise in commodity prices for final recipients of the funds. Additional avenues to explore to further align the business models to changing realities is the better use of data to understand user behaviors: the collection of granular data is essential for enhancing and improving solution design and delivery while overcoming barriers.

Initial Insights from Piloting a Crowdlending Model
Pezesha, a crowdlending platform, provided a marketplace where micro, small and medium-sized enterprises could access finance from investors to grow their businesses. In the years 2020-2022, Pezesha had served over 700 MSMEs in the target regions and disbursed over GHs 4.4m (US$391,925) in loans. Some customers had accessed three to four loan facilities and fully paid off within the cycle.

High mobile penetration, comparatively low inflation rates (at the time) availability of borrowers' credit history from the Credit Reference Bureau, among others, were enabling factors that aided Pezesha's goal to promote financial inclusion by providing access to credit to MSMEs who typically could not access traditional loan facilities. On the downside, however, changes to the business environment on regulation and a volatile economic situation eventually affected Pesezha's operations as a foreign player in the local market.

Initial Insights from Piloting Donation-Based Crowdfunding
Under donation-based crowdfunding, UNCDF also tested a model targeted at MSMEs as well as community projects, gaining different learnings and some similarities.

For the model targeting the MSMEs, the objective was to test such platforms to source capital from the diaspora community. In addition to raising capital for their businesses, the entrepreneurs were to receive training on financial management, pitching, marketing and crowdfunding techniques. More than 50 pilot users participated in the experiment, among them were MSME campaigners (23) and diaspora groups (33). Despite the training and support from Business Support Organizations (e.g., hubs), entrepreneurs were found with very low capacity in independently managing their campaigns and did not acquire the necessary skills to drive engagement.

Additionally, virtual marketing alone of crowdfunding platforms targeted at diaspora audiences was ineffective in building trust and creating awareness due to wrong perceptions, judgments, and low receptiveness to such campaigns on digital media platforms. The uptake was much lower than expected, due to several challenges. People's lack of interest in donating to campaigns for budding entrepreneurs was due to the perception of such campaigns as "begging". Instead, people preferred to offer support in other ways, such as housing, childcare, and food provision. People were more inclined to donate towards charity initiatives, community and infrastructure projects, and equity solutions rather than business-oriented campaigns. Donation seems to have proven to be a wrong channel for business fundraising strategies.

These initial learning informed additional project design and moved the target of donation-based to community projects, such as local resilient climate infrastructure in communities while keeping track of donors’ contributions and keeping members accountable for the use of donated funds.

Conscious of the challenges faced in previous engagement, UNCDF and new partners (e.g., Chango) have forged strategic partnerships with various private and public sector organizations with diaspora connections to enhance awareness of the solution and promote sponsor contributions towards homeland development. A mix of digital (e.g., webinars) and non-digital tools (one-to-one engagement with organizations) were deployed to get the most uptake. The general good turnaround of diaspora commitment of GHs 450,551 (US$40,132) channeled through the platform) is also due to the good reputation of the mother company as well as the strong brand identity among targeted users. To build trust, secure buy-in, and create broader awareness of the benefits of donation-based crowdfunding, Chango is undertaking intensive education campaigns both virtually and in the target diaspora countries. This has resulted in promising outcomes regarding project targets a few months after onboarding.

However, Chango has also encountered a challenge in user acquisition in-country (e.g., recipients of the donations): individuals, groups, or communities seeking to raise funds lacked basic information for KYC requirements, limiting full uptake of the solutions but also prompting discussions on how to reassess onboarding requirements and accommodate all user types while ensuring regulatory compliance.

UNCDF has adopted a holistic approach to addressing the challenges identified. User-centricity, data and research, are among the few of the tools that UNCDF and its partners have deployed to learn from the users and adapt accordingly. It also became relevant to use a stakeholder and partnership approach and work with the public sector (e.g., regulators) to ensure an enabling environment for these private sector providers to flourish. UNCDF continues to leverage best practices and critical lessons in contributing to building a sustainable crowdfunding ecosystem in Ghana. In the second part of this series, we will deep-dive into the work with the public sphere to ensure comprehensive support to the crowdfunding sector to unleash the potential of bridging the financing gap.