African and Middle East alternative finance markets totaled more than $475 million in 2013-2015, with growth of 59 per cent to $242 million in 2015, says inaugural report by the Cambridge Centre for Alternative Finance, in partnership with Energy4Impact, UKAid and CME Group Foundation.
The African and Middle East alternative finance markets totaled more than $475 million between 2013-2015, much of it through equity crowdfunding and online microfinance rather than the peer-to-peer lending seen in more developed markets, according to a new report by the Cambridge Centre for Alternative Finance (CCAF), in partnership with Energy4Impact, UKAid and CME Group Foundation.
In 2015, the total market grew by 59 per cent to a total of $242 million, according to the results of the inaugural study – the Africa & Middle East Alternative Finance Benchmarking Report.
Equity-based crowdfunding accounted for 67 per cent of total market value in the Middle East, while online microfinance was the leading model in Africa with 42 per cent of total market value. Peer-to-peer business lending accounted for only 17 per cent of total market volume in Africa, while peer-to-peer consumer lending accounted for only six per cent of total market volume in the Middle East. This differs markedly from other markets covered by CCAF, such as the Americas, China and the UK, in which peer-to-peer consumer and business lending account for the vast majority of activity.
The report had the support of six leading industry partners, and was based on data collected from 70 alternative finance platforms operating across 46 countries in Africa and 12 in the Middle East – capturing an estimated 85 per cent of market activity.
Israel was by far the largest market across the surveyed regions, with a total of nearly $125 million in 2015, followed by the UAE with over $17 million, Kenya with more than $16 million and South Africa with $15 million. Other notable markets across Africa and the Middle East in 2015 include: Nigeria (approximately $8 million), Cameroon ($7 million), Ghana, Uganda and Qatar (each $5 million), and Rwanda, Lebanon and Jordan (each $4 million).
In Africa, the market was nearly $190 million between 2013-2015, and grew 36 per cent in 2015 to $83 million. Most African activity was through online microfinance as well as donation and rewards-based crowdfunding. Investment-based equity and debt models are yet to really make their mark on the African market, though 2016 results when tabulated could show this emerging.
As for the Middle East, about $286 million was raised in 2013-15, including an increase of 75 per cent in 2015 to $159 million. Equity-based crowdfunding accounted for two thirds of market activity in the Middle East – with the vast majority occurring within Israel. Donation and reward-based crowdfunding, online microfinance, peer-to-peer business and consumer lending and real estate crowdfunding accounted for similar proportions of market activity of five to six per cent in the Middle East.
Previous alternative finance reports by CCAF cover the UK, Europe, the Americas and the Asia-Pacific region.
Robert Wardrop, Executive Director of the Cambridge Centre for Alternative Finance, said of the Africa and Middle East report: “The development trends we have observed in these regions are quite different from the other global regions our research centre has studied, in part because they are in an early stage of market development and growing more slowly than other global regions. But there are other trends unique to the region and certain countries. For example, funding flows for non-financial projects like donation, reward, and philanthropic online microfinance projects are primarily being funded via platforms based outside Africa. In the Middle East, donation and rewards-based crowdfunding are quite well established and debt-based models are starting to make their mark, but Israel is distinguished by the strong presence of equity-based crowdfunding.”
Simon Collings, Director of Learning and Innovation at Energy4Impact, said: “The rapid growth of crowdfunding globally has led some in the development sector to see the crowd as a potential solution to the funding challenges innovative businesses face when they try to serve the ‘bottom of the pyramid.’ But how significant is it in a developing country context? Global numbers can be misleading. As we see from this latest CCAF report a small number of countries typically dominate the market in any given region, and the degree to which resources are raised from local vs international sources can be markedly different from one region to another. Knowing what’s really happening in this sector at the level of individual countries, types of funds raised, and who the recipients of those funds are, is key to understanding how crowdfunding might best support international development.”
Unlike previous regional reports from CCAF, the new study also includes chapters on emerging alternative payment systems mobile payment and cryptocurrencies, crowdfunding and peer-to-peer lending regulatory landscapes in Africa and the Middle East (drawing on CCAF’s recent regulatory research with the FSD Africa), and on renewable energy crowdfunding, with insights from the DIFD-funded CrowdPower Programme, carried out by Energy4Impact.
Other key findings of the Africa and Middle East report include:
- In 2015, well over three quarters of the total online alternative finance raised from Africa and the Middle East regions was funding for start-ups and SMEs, with $62 million raised across Africa and $132 million raised across the Middle East.
- In Africa, 90 per cent of online alternative finance originated from platforms headquartered outside of the continent, while in the Middle East the reverse is true with 93 per cent of online funding originating from home-grown platforms in the region.
- Both the African and Middle Eastern online alternative finance markets are showing signs of decelerating growth, particularly in the Middle East. The Middle East experienced an annual growth rate of 152 per cent from 2013-2014, but that rate fell to 75 per cent from 2014-2015. The African market grew 38 per cent from 2013-2014 and 36 per cent between 2014-2015.
- The East Africa region has the largest market share of the African alternative finance market in 2015, accounting for 41 per cent of total African market share compared to 24 per cent for West Africa and 19 per cent for Southern Africa.