ALTERNATIVE FINANCING Page 25 lending structure supported by the crowdfunding logic. Just like normal debt servicing, a lender will earn interest on the loan and the company has to repay its crowdlending debts as a first priority. A variation of this model exists in developing countries, where crowdlending is used as micro finance to support small companies. With socially responsible lending in micro finance, no interest, or a very small interest amount, is paid.
Equity crowdfunding is the fourth addition to the crowdfunding genre. In this model, many investors come together to invest jointly in the shares or equity of a company or a securitised project. Companies can raise capital and the investors become risk-taking shareholders. They are paid in dividends or, hopefully, by selling their shares at a profit after an increase in the value of the company.
The key to crowdfunding is building a social network of like-minded investors who are interested in the investments that you can offer and the track record that the platform is able to build. The emergence of social networks and changes in Internet use were among the most important building blocks that made crowdfunding possible. The ambition of every crowdfunding platform is to build a global network that is as big as possible, because its existence depends on crowds coming together to support its mission.
In 2013 the World Bank produced an extensive report( http:// bit. ly / worldbank _ report) on the potential of crowdfunding in the developing world. A crowdfunding ecosystem depends on key enablers to build trust.“ Trust does not just happen – it is a socially mediated phenomenon which relies in great part on the intrinsic trust people place in shared connections on social networks, community affinities, and the ratings of others on trusted, mainstream websites.”( World Bank report:‘ Crowdfunding’ s Potential for the Developing World’)
HOW DOES DEVELOPMENT CROWDFUNDING WORK?
A property crowdfunding platform is a global community. The added value of a property crowdfunding platform is that it offers a marketplace and a security-based ecosystem where the real estate and infrastructure developers in sub-Saharan Africa can meet and transact with the worldwide community of small and large investors, as well as institutional investors. The crowdfunding platform facilitates the transaction, but should also inspire trust and project the transparency of the investment for the investor’ s benefit. This helps the investor make an informed decision based on all the information available, and creates clarity, a proper risk profile and an investment that offers the investor as much security as possible. The difference between normal crowdfunding and property crowdfunding is the existence of a real asset. Property crowdfunding is basically asset financing, and the asset is used as collateral.
WHAT TYPE OF DEVELOPMENT IS THE IDEAL CANDIDATE FOR CROWDFUNDING?
A property crowdfunding platform like Realty Africa typically offers a diversified portfolio of projects. Projects can be short or long term and include full development as well as refurbishment projects or asset finance on existing properties, with the right business case. A short-term project would typically be a residential development for selling. Longerterm projects might be rental properties or tourist accommodation.
Also the size of projects on the platform can vary from $ 200 000 to several millions of dollars. The success of the project depends entirely on the business case, the attractiveness of the project and how the interest of the investor can be captured. This means that the developer is obliged to come up with a sound, secure and transparent project that is as attractive as possible. Property crowdfunding is not just about securing