From Policy Gaps to Opportunities in Ghana

  • August 23, 2023

  • Ghana


Yaa Asamoah Boateng
Communication and Knowledge Management Analyst


How UNCDF and Ghana’s Securities and Exchange Commission’s Equity Crowdfunding Guidelines Aim to Unlock Access to Finance for MSMEs.

To continue its efforts of knowledge sharing, UNCDF releases a new blog from the "Lessons learned from practitioners: Crowdfunding in Ghana" series started in 2020 with additional findings from the implementation. After three years of implementing the GrEEn Project, the new blog shares findings and insights collected through engagement with private and public sector providers shaping the sector. While the first piece focused on the private sector and its efforts to mobilize finance through crowdfunding, this piece focuses on factors that would ensure a comprehensive public framework to boost innovation while providing customer protection.

In part one of this 2-part blog, published on 9 June 2023, UNCDF identified several challenges and limitations to mobilizing private sector financing for MSMEs. Among the potential solutions, equity crowdfunding, which is currently unregulated, emerged as a preferred option with significant potential to improve access to finance. As pointed out in a previous knowledge piece, enabling regulatory environment for crowdfunding, the Bank of Ghana issued Ghana's first-ever crowdfunding policy in February 2021. However, the policy only covers reward-based and donation crowdfunding, leaving equity or investment-based crowdfunding unregulated.

The lack of regulation for investment crowdfunding has hindered the development of a full-fledged crowdfunding ecosystem that boosts the growth of the entrepreneurial community in Ghana. It is only in 2022 that the Securities and Exchange Commission-SEC, (which is responsible for regulating and promoting the growth and development of an efficient, fair and transparent securities market in which investors and the integrity of the market are protected) shared with key stakeholders the first draft equity crowdfunding policy guidelines of its kind.

Since then, UNCDF has extensively worked in collaboration with SEC to ensure that the sector could benefit from comprehensive guidelines to regulate equity or investment-based crowdfunding in Ghana and provide a sustainable solution to the challenges that MSMEs and startups face in accessing finance from traditional sources such as banks.

As pointed out in a previous knowledge piece focused on UNCDF and SEC's collaboration which started in 2022, UNCDF implemented an intentional and comprehensive consultative approach to engage with key stakeholders in the development of the guidelines. These stakeholders include payment service providers, crowdfunding intermediaries and the regulator. The consultative process incorporated various considerations, such as raising awareness of crowdfunding's potential as a viable non-traditional financing mechanism, incorporating best regulatory practices from advanced jurisdictions, addressing critical issues affecting the sector, and tailoring the guidelines to the local context.

Reiterating the importance of stakeholder engagement to the process and SEC’s commitment, Director-General, Daniel Ogbamey Tetteh said:

As part of our mandate to create a conducive environment for innovation and growth, we recognize the potential of crowdfunding as an alternative financing mechanism for MSMEs. The consultative approach adopted by UNCDF in engaging key stakeholders has been invaluable in developing guidelines tailored to the local context. These guidelines will address several challenges and promote access to finance for MSMEs through equity or investment-based crowdfunding.

In 2023, UNCDF extended its Technical Assistance (TA) facility to explore and implement recommendations identified in 2022 engagements in revising and finalizing the guidelines. For that purpose, UNCDF selected a technical consultant, Elizabeth Howard of Lelapa-African FinTech Advisory, who accompanied UNCDF and SEC along the process. The guidelines will provide a comprehensive framework for equity crowdfunding in Ghana. Thus, it will define the legal and regulatory framework and set out definite requirements for crowdfunding platforms to adhere to. This includes licensing requirements, disclosure requirements, and reporting obligations to build trust and confidence to attract more investors and businesses to participate. The scope of the guidelines, which is currently undergoing final review, encompasses a broad range of entities, including crowdfunding intermediaries seeking licensing, companies utilizing the services of a crowdfunding intermediary to raise funds, companies wishing to establish and operate a crowdfunding platform, foreign companies operating crowdfunding platforms and seeking to expand into Ghana, and foreign individuals or institutions providing investment-crowdfunding services within Ghana.

Under the TA facility, UNCDF and SEC have worked extensively to ensure a fair balance between investor protection and innovative finance.

On one side, the guidelines prioritize investor protection by requiring crowdfunding platforms to provide clear and transparent information about the risks and returns associated with investments. The aim is to ensure that only credible and trustworthy platforms can operate in the crowdfunding ecosystem, reducing the risk of fraud and other malpractices. The guidelines require crowdfunding platforms to undergo a rigorous licensing process, which includes a review of their business model, governance structure, and financial stability.

On the other hand, to unlock the potential of crowdfunding as a tool to promote access to finance, the guidelines seek to encourage crowdfunding for social and environmental impact projects. Overall, it is envisioned that the comprehensive and innovative nature of the guidelines will help address pertinent challenges. A notable example is the intention of such guidelines to promote more collaboration between crowdfunding platforms and other players in the financial ecosystem (banks, MFIs and investment funds) to build an integrated value chain. The silo approach creates barriers to the flow of capital and limits the ability of businesses to access financing from multiple sources.

UNCDF and SEC's intentions are for the guidelines to help address the challenge where the Ghanaian investments crowdfunding ecosystem has been viewed as a stand-alone financial technology, instead of being an integral part of the start-up and early-stage MSME finance ecosystem. In other developed jurisdictions like the US, UK and Europe, integration is considered a key factor for the sustainability of equity-crowdfunding platforms. This integration helped boost confidence and increase investments in the space.

Emphasizing the revolutionary work that UNCDF and SEC have done in developing the guidelines, Deborah Agyemfra, Deputy Director-General Legal, said:

“Our commitment to this process has been unwavering, with extensive consultations to ensure the guidelines are useful and relevant to all parties. SEC opted for guidelines instead of regulations to provide flexibility and responsiveness to changing circumstances. However, the guidelines carry the same weight as a regulation, as affirmed by a supreme court ruling in Ghana. This approach does not downgrade the importance of the crowdfunding guidelines in any way, but rather provides a solid foundation for future conversion into regulations if necessary.”

The consultative process for drafting the guidelines has incorporated best practices and benchmarks from various countries. The SEC has conducted a final evaluation workshop to ensure that the guidelines align with local laws. The outcome of this workshop is the final draft of the guidelines, which will undergo validation processes before being launched later this year.

The forthcoming guidelines are expected to be a game-changer for the entrepreneurial landscape in Ghana by enhancing access to finance, fostering financial inclusion, promoting sustainable finance, and unlocking significant opportunities for MSMEs. UNCDF is committed to this process and will continue to provide funding and technical support to address any initial adoption challenges and ensure that private players operate within a regulatory environment that fosters innovation and supports growth.