Crowdfunding – not a silver bullet for financing needs of MSMEs

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Jinita Prasad. Picture: LINKEDIN

Crowdfunding is not a silver bullet for the financing needs of micro, small and medium enterprises (MSMEs), said Asian Development Bank (ADB) consultant Jinita Prasad, as concerns are raised on the suitability to micro enterprises of the three modes of alternative financing contained in the Access to Capital Bill currently under public consultation.

“SPBD (South Pacific Business Development) already operates in this space as the microfinance institution in Fiji,” Ms Prasad said, in an interview with The Fiji Times.

“While crowdfunding can work for some SMEs, unfortunately it is not a silver bullet for all MSMEs.

“Businesses using such avenues to access finance need to have some level of sophistication so they can demonstrate to investors how strong their foundation is, how they intend to use the funds to grow and improve their ability to provide returns to their investors.”

The initiative is a collaborative effort by the Ministry of Trade, Cooperatives, SMEs and Communications, the Ministry of Finance, Reserve Bank of Fiji, Office of the Solicitor General and the ADB, who are represented in the working group currently holding the public consultations.

Ms Prasad is the author of the ADB policy paper adopted by Government to guide its work on the initiative, which outlines draft laws on three financial regimes – small offers, equity crowdfunding and people-to-people (P2P) lending.

At the first public consultation in Suva last week, businesswoman Carolyn Ah Koy suggested the scaling of these capital raising ventures to suit micro businesses through concepts such as the Grameen Bank option or social businesses.

“Those are very real things, and maybe some baby loans that we need to start with before we start doing crowdfunding and handle millions of dollars because some of us can’t fathom that here. Just putting it out there,” she said.

Retired radio broadcaster Isimeli Cerelala, who attended the public consultation in Korovou called for simplification of the language in order that it be understood by the grassroots to help them make their submission.

“It is a good move but if they can review the limit on what they are trying to do. The advantage is the processing is fast and there’s no security or collateral,” he said.

Under the small offers regime, a business can raise a maximum of $2million in a private offer only to a network of known associates of not more than 40 people.

Equity crowdfunding is a public offer for a maximum of $5m either through a loan or share offer to an unlimited number of investors.

The offer is to be brokered through intermediaries licensed by the Reserve Bank of Fiji.

In P2P lending, there are no limits to the funds being raised or investors taking part.