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Investment platforms vie to capture a share of global remittances

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IN 2016 AYO ADEWUNMI, a Nigerian-born agricultural trader living in London, bought a five-hectare farm in his homeland. It has produced little since. “I am not in the country, so I have to rely on third parties. It’s just not good enough,” he says.

Mr Adewunmi has since discovered another, potentially more satisfactory way to make such investments: through FarmCrowdy, a crowdfunding platform that lends to Nigerian farms and provides technical assistance to their owners. The two-year-old startup, which is considering expanding into Ghana, places high hopes in the African diaspora as a source of funds.

The case for such platforms goes beyond agriculture. Global remittances are expected to soar from $468bn in 2010 to $667bn in 2019. They are among the top two foreign-currency sources in several countries, including Kenya and the Philippines. Yet hardly any of the money is invested.

In part, this is because recipients use three-quarters of the money for basics such as food and housing. But it is also because emigrants who want to invest back home have few options. New investment channels could attract lots of extra cash—about $73bn a year in Commonwealth countries alone, according to research by the 53-country grouping.

Crowdfunding platforms would enable investors to put modest sums directly into smaller businesses in developing countries, which are often cash-starved. Yet of the emerging world’s 85 debt- and equity-crowdfunding ventures, only a handful raise money abroad. Several platforms set up in rich countries over the past decade to invest in developing countries, including Emerging Crowd, Homestrings and Enable Impact, quickly folded.

A big problem is that few developing countries have rules about crowdfunding. Many have allowed activity so far chiefly because the industry is so small, says Anton Root of Allied Crowds, a consultancy. Cross-border transfers using such platforms easily fall foul of rich countries’ rules intended to stop money-laundering and the financing of terrorism.

Some developing countries have realised that they need to act. Thailand, Malaysia, Singapore and Indonesia have all recently passed regulations on equity crowdfunding or peer-to-peer lending. But from a cross-border perspective, Africa seems most inventive, owing to active entrepreneurs and Western help.

Last month the British government approved a grant of £230,000 ($300,000) to the African Crowdfunding Association to help it craft model accreditation and investor-protection rules. Elizabeth Howard of LelapaFund, a platform focused on east Africa, is part of an effort to see such rules adopted across the continent. That would help reassure sending countries that transfers do not end up in the wrong hands, she says. She hopes to enlist the support of the Central Bank of West African States, which oversees eight Francophone countries, at a gathering of crowdfunders and regulators sponsored by the French government in Dakar, in Senegal, this month.

Thameur Hemdane of Afrikwity, a platform targeting Francophone Africa, says the industry will also study whether prospective laws could be expanded to the Central African Economic and Monetary Community, a grouping of six countries. Harmonised rules will not guarantee crowdfunders’ success, but would be a useful step towards raising the amount of diaspora capital that is put to productive use.

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