CDB Partners with ECSRC to Bring Crowdfunding to Eastern Caribbean MSMEs

Aug 26, 2022 News

Kaieteur News – The Caribbean Development Bank’s (CDB) 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.

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 mobilised 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% of enterprises and contribute 50% 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 fine-tuning. 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.