BRIDGETOWN, Barbados – Building on the Caribbean Development Bank’s (CDB) focus on innovation and increasing access to financing to ensure growth and development, the regional financial institution has partnered with the Eastern Caribbean Securities Regulatory Commission (ECSRC) to develop a solution to improve the availability of funding to Micro Small and Medium Sized Enterprises (MSMEs) and establish equity-based crowdfunding in the Eastern Caribbean.
Through the 18-month Increasing Access to Finance for Micro, Small and Medium-Sized Enterprises in the Eastern Caribbean Currency Union Countries Through the Development of a Crowdfunding Framework Project funded by CDB and implemented by the ECSRC, a viable equity crowdfunding platform will be established in Eastern Caribbean Currency Union (ECCU) member countries by 2023 supported by an appropriate regulatory framework.
Crowdfunding is an innovative, technology-based activity which utilises online platforms to economically and effectively connect potential individuals, firms and groups seeking to raise capital with potential funders. Equity-based crowdfunding, which is being pursued under this project, allows prospective investors to offer funding to businesses in exchange for shares or an equity stake in these businesses.
According to Lisa Harding, coordinator, micro small and medium sized development, CDB “The bank is cognisant of the significance of MSMEs in the economic ecosystems of the region, and while recovery post-pandemic has been slow within the sector, through this arrangement greater collateral will be mobiilsed to effect an accelerated and even more successful rebound, among Eastern Caribbean businesses.”
The project was conceptualised based on needs articulated by the sector. Access to finance, particularly in the wake of COVID-19, remains a major impediment to growth for Caribbean MSMEs. There are approximately 20,000 MSMEs in the Eastern Caribbean which comprise 95 percent of enterprises and contribute 50 percent of GDP and employment. Beyond closure, many of the smaller firms which survived are facing severe cash flow problems because of public health restrictions and its implications on trade and business. This initiative seeks to both enhance the environment and support increased access to finance for MSMEs in the ECCU.
The first phase of the project includes capacity-building sessions which will be administered by the ECSRC commencing September 2022. Activities include cross-sectoral stakeholder engagement and awareness building, training in crowdfunding and equity investing for entrepreneurs and investors with a gender lens. The project will also deliver a Crowdfunding Policy Framework developed by the ECSRC and a prototype for testing and finetuning. The project responds to ongoing challenges faced by MSMEs owing to the sector’s informality.
Within the sector, small firms that could qualify for financing from commercial banks, frequently do not apply because of complex application procedures and high-interest rates. MSMEs also face a knowledge gap regarding information on the various financing programmes available, both at the local and regional levels. There is also limited capital aside from commercial bank loans, as well as some grants and funds available through development banks and international donor agencies.
Crowdfunding, therefore, offers an alternative financial instrument that provides new avenues for investment, particularly in under-developed capital markets such as the ECCU.