Regulation and Policy for Market Development
Kieran Garvey, Tania Ziegler, Bryan Zhang, Robert Wardrop, Professor Raghavendra Rau, Mia Gray & Samantha Ridler
Earlier in 2016, DFID-funded FSD Africa partnered with the Cambridge Centre for Alternative Finance (CCAF) and Anjarwalla & Khanna to conduct a regulatory review of different crowdfunding models across Kenya, Tanzania, Uganda and Rwanda.
Crowdfunding is fast taking shape across East Africa - particularly non-financial return based models such as rewards and donations crowdfunding. However, return-based equity and loan-based crowdfunding are really only starting to emerge. Such FinTech models require careful and considerate attention from financial regulators in East Africa to catalyse and harness their potential positive economic and social benefits whilst addressing systemic and consumer risks and challenges.
This report highlights some key priority regulatory and policy areas necessary for market development in Kenya, Uganda, Rwanda and Tanzania while drawing on insights & experience from the UK, the USA, Malaysia, New Zealand and India.
Some of the key findings include the following:
- There is no bespoke or specific crowdfunding regulation in East Africa or South Africa.
- Non-financial return-based models dominate market activity in East Africa.
- Financial return-based loan and equity models are only in the very earliest stages.
- Loan- and equity-based models dominate total global activity, and account for the majority of market activity in more established markets, while donation- and rewards account for a small percentage of total market activity.
New crowdfunding regulations in East Africa are not recommended at this time. Instead, other regulator-led, market development initiatives should be considered including:
- A living database of all, existing, regulator-acknowledged platforms in East Africa.
- Regulator engagement opportunities - to bring together the East African crowdfunding industry, practitioners, experts, potential funders and fundraisers.
- Develop a regional regulatory laboratory or 'Sandbox' to guide crowdfunding businesses through the relevant regulatory processes and requirements.
- Regulators should encourage the East African crowdfunding platforms to build a regionally-focused industry association to undertake self-regulation and institute guidelines and principles to foster innovation while protecting investors.
The report goes into a great deal of depth covering markets in East Africa and other more established crowdfunding markets. It also provides useful guidance for crowdfunding platforms that are seeking to establish operations in these countries as well as hopefully encouraging platforms operating elsewhere to consider East Africa as a market to provide their innovative financial crowdfunding services.
We would like to thank the large number of contributors who have made this research possible including a wide array of regulators from the Capital Market Authorities, Central Banks and Communication Authorities of Kenya, Rwanda, Uganda and Tanzania as well as the host of experts, crowdfunding platforms and other policymakers that have generously provided their expertise and insight.