Crowdfunding for energy access businesses and projects is still at an early stage, and is often poorly understood. Investors often dismiss it as irrelevant relative to the size of the overall market, and entrepreneurs may show undue excitement about the prospects of raising funds from the crowd. While crowdfunding accounts for a small percentage of all financing raised for off-grid energy it has a particularly important role in a number of areas.
Donation campaigns allow community organisations to raise donations and reach poorer communities, and indigenous platforms like M-Changa allow local entrepreneurs to start businesses by aggregating funds from family and friends, and other partners. These campaigns are particularly important for supporting grassroots work, and marginalized populations, which are unlikely to be natural customers for for-profit businesses. Reward platforms are important for energy access start-ups that have an international team and network; they can utilise reward platforms to raise seed funding from family and friends, and extended networks.
Debt crowdfunding dominates the market and is where we see the most potential for growth, scale, and impact. There is potential for DFIs and philanthropists to make an impact through the provision of match funding, gift vouchers, and firstloss guarantees via relevant platforms. There is also an expressed need for hedging instruments to cover foreign exchange risk. It’s important to bear in mind that the pipeline of potential borrowers is still relatively small, and that interventions should be in line with the size of the debt crowdfunding market – about $4.6 million in 2016.
Equity crowdfunding had impressive growth in 2016, however we must consider that there were only three campaigns over this period, which may distort growth data. Nonetheless, support from DFIs could assist to build awareness among entrepreneurs, incubate potential investees, and create better legal frameworks to bolster platform growth. Up to this point, energy access related equity crowdfunding has been on UK and European platforms, however we anticipate changing regulations in emerging markets will mean, over the next few years, more equity crowdfunding will involve the participation of local businesses and investors.
Excerpt of: Crowd Power: Can the Crowd Close the Financing Gap? Energy 4 Impact 2017. Download here the full study