Overview of Crowdfunding in South Africa
Crowdfunding in South Africa is actively applied by companies to raise funds for the launch of a new product or business development. Even though the crowdfunding market is still very young, there can be early opportunities for launching a crowdfunding platform in South Africa.
While in Europe, crowdfunding has already become mainstream, the situation in South Africa is completely different.
In 2020, the number of crowdfunding platforms started growing and the operating platform started reporting increases in the campaign submissions, largely because of the COVID pandemic when due to lockdowns, the majority of businesses lost access to their traditional funding sources.
What you will learn in this post:
Crowdfunding platforms in South Africa
The first platforms, Backabuddy and Thundafund, founded in 2007 and 2011 respectively, have been raising funds for charity and individual cases and the first equity crowdfunding platform Uprise Africa was launched in 2017. Let’s take a closer look at the major platforms operating in the South Africa crowdfunding market.
Uprise.Africa is an equity-based platform regulated by the Financial Sector Conduct Authority of South Africa. The platform charges an onboarding fee, a fee for capital raise in case the fundraising target is achieved, as well as transaction fees. The campaign preparation costs are also covered by the fundraiser.
Thundafund is a reward-based crowdfunding platform that is used to raise funds to support creative innovative projects. The platform charges a commission on the final amount of the funds raised: 5% for certified NGOs, and 7% for individuals and organizations, third parties fees, and transaction administration fees.
Livestock Wealth is an equity-based platform that enables investing in young farm assets – plants and livestock. The assets grow on the farm, and the farmer buys back the assets while making investors benefit. The platform is regulated by the National Credit Regulator, the Agriculture Produced Agent’s Council, and is registered with the Financial Sector Conduct Authority.
Crowdfunding Regulation in South Africa
All the crowdfunding activities are regulated by the FSCA of South Africa, however, some sources say that the country doesn’t have a specific crowdfunding regulation.
So, what’s the status with crowdfunding regulations in South Africa?
Financial authorities are struggling to find the right balance between encouraging the development of crowdfunding in the country and mitigating risks for investors. Therefore, crowdfunding platforms in South Africa are subject to already existing regulations.
According to the different sources on the web, all the platforms involved in the provision of financial services to investors or clients have to be authorized under the Financial Authority and Intermediary Service Act (FAIS). The term “financial services” means here advising or intermediary services in relation to a financial product. A financial product here can be regarded as bonds, shares, derivatives, specific investment instruments, among others. If a platform deals with one or more financial products, it shall be authorized by FAIS to operate.
All the companies that deal with over-the-counter derivatives and investment instruments shall be registered under the Financial Markets Act (FMA).
The National Credit Regulation Act (NCA) regulates all the lending and borrowing activities in the country. In the case of crowdfunding platforms, they match lenders with borrowers. This activity falls under the NCA regulation.
The Banks Act regulates deposit provision and deposit issuance activities. In crowdfunding, raising and investing funds can be compared with deposit-taking and deposit provision. Therefore, crowdfunding platforms can fall under the Banks Act.
The Companies Act regulates the cases when the company’s activities can be classified as a public offering. In crowdfunding, it is valid for equity-based transactions.
The National Payment System Act (NPSA) regulates the activities of payment system providers. The NPSA establishes the roles of various players in a payment system: fundraisers, investors, and the platform as intermediary service. This detail shall also be considered when launching a crowdfunding platform.
All these acts, except for the NPSA, fall under the purview of the Financial Service Conduct Authority (FSCA). The NPSA falls under the purview of the Payment Association of South Africa (PASA) and the South African Reserve Bank (SARB). Therefore, we can conclude that the FSCA is the main regulator for crowdfunding businesses in South Africa.
The interest in crowdfunding in South Africa is growing. However, regulatory uncertainty might become a serious obstacle to launching a crowdfunding portal quickly. Nevertheless, there are already proven cases of crowdfunding platforms in South Africa, so launching a crowdfunding platform prototype can help to establish the market presence.
Crowdfunding platform software for South Africa
If you are interested in participating in crowdfunding activities, be it launching a new crowdfunding business or investing in a project on a crowdfunding platform, you should probably start with contacting the FSCA beforehand to see whether your activity falls under one of the mentioned regulations.
A crowdfunding platform can offer different services which might be an additional challenge for a platform owner in choosing the right approach to ensure your platform’s legal compliance with all the regulatory requirements. Therefore, it is recommended to hire a crowdfunding attorney in South Africa to prevent legal issues in the future.
If you’re looking for crowdfunding software that you can use as a prototype solution or even build a fully custom platform, consider LenderKit.
With our software you can build a highly scalable P2P lending platform or launch your own equity-based or real estate crowdfunding platform tailored to the needs of your business. If you’re looking for a white-label crowdfunding software, LenderKit provides an extensive set of out-of-the-box features to run your platform. If you believe that you need more, you can customize the available features and add new ones.