Investor Relations: Impacting MSMEs Crowdfunding in Nigeria

By Enam Obiosio

Micro, Small, and Medium Enterprises (MSMEs) are the backbone of Nigeria’s economy, contributing significantly to employment and gross domestic product (GDP) growth. However, one of the most pressing challenges these enterprises face is access to adequate funding. In response to this, the Securities and Exchange Commission (SEC) on January 21, 2021 introduced in Nigeria the Crowdfunding Rules and Regulations to provide an alternative financing model for MSMEs through licensed crowdfunding platforms.

For many MSMEs, the introduction of crowdfunding represents a lifeline; it was a significant move to broaden access to funding for MSMEs. Traditionally constrained by limited access to loans and equity financing, these enterprises can now tap into a broader pool of investors.

The framework represents a major step forward in democratising access to capital. Attracting and retaining investors requires more than just having a good business idea. The framework has marked a bold step toward creating a structured and transparent crowdfunding ecosystem, allowing startups and MSMEs to raise funds through licensed online platforms. While the new rules could begin to reshape Nigeria’s financing landscape, the role of investor relations (IR) in maximising the benefits of this initiative is crucial. It demands effective communication, strategic engagement, and sustained transparency—core elements of IR.

The Journey So Far: Crowdfunding and MSMEs in Nigeria

Since the introduction of the Nigerian Crowdfunding Rules, the MSME sector has seen modest yet promising growth in terms of access to finance. A few crowdfunding platforms have emerged, such as ThriveAgric – focuses on agriculture funding, allowing investors to fund farms and receive returns on their investments; Crowdyvest – offers opportunities for funding various projects across sectors like agriculture, real estate, and transportation; Farmcrowdy – specialises in agriculture-based funding, enabling individuals to invest in farm projects; NaijaFund – a general-purpose funding platform that helps individuals and small businesses raise funds; FundanEnterprise – supports MSMEs in raising capital for business expansion; FINT – peer-to-peer lending platform that connects investors with creditworthy borrowers; and Egoras – focuses on decentralised microfinance and allows businesses to access interest-free loans through crowdfunding.

These platforms operate within the framework of the SEC’s Crowdfunding Rules, ensuring compliance and investor protection. They have emerged as key players, giving entrepreneurs the opportunity to raise funds directly from a wide pool of retail and institutional investors. While the initiative has unlocked new opportunities, several challenges persist. A few of the challenges are:

Low Awareness and Adoption: Despite the potential, many MSMEs remain unaware of how crowdfunding works or how to position their businesses effectively for investor participation.
Regulatory and Compliance Hurdles: For smaller enterprises, complying with the SEC’s requirements can be cumbersome and costly, deterring participation.
Investor Skepticism: The Nigerian market has seen its fair share of failed informal fundraising schemes, which has left many investors wary.

However, ongoing education and capacity building efforts are helping to change this narrative. With the right investor relations strategy, MSMEs can overcome these barriers and tap into the growing pool of capital available through crowdfunding.

Despite these challenges, the subsector holds immense potential. With increasing awareness and improved regulatory oversight, crowdfunding could significantly bridge the financing gap for MSMEs. However, the full realisation of this potential depends on how well MSMEs incorporate robust IR strategies into their operations.

Why IR Matters for MSMEs in Crowdfunding

Investor Relations is no longer a luxury reserved for large corporations. In the crowdfunding ecosystem, it has become essential for MSMEs looking to position themselves competitively.

For MSMEs to thrive within the crowdfunding framework, they must focus on developing investor-centric strategies:

• Training and Capacity Building: MSME operators should be trained on best practices in investor relations and financial management.
• Technology Integration: Digital tools can enhance investor communication and improve transparency.
• Collaborative Partnerships: Working with investor relations consultants and crowdfunding experts can help MSMEs effectively navigate the complexities of the funding ecosystem.

The Role of IR in Crowdfunding for MSMEs

The role of IR in this ecosystem cannot be overlooked. IR plays a significant role in building trust and transparency between MSMEs and potential investors. Crowdfunding is largely driven by investor confidence, and this is where IR comes in. Effective communication, strategic messaging, and continuous engagement with stakeholders are essential for success. MSMEs need to adopt sound IR practices to:

• Attract and Retain Investors: Clear communication of business strategies, financial performance, and growth projections enhances investor confidence.
• Ensure Transparency and Compliance: With the regulatory requirements stipulated by the SEC, MSMEs must adopt practices that promote accountability, ensuring regular updates and accurate disclosure of financial information.
• Mitigate Risks: Proactive communication helps manage risks and investor expectations, reducing uncertainty and fostering long-term relationships.

The benefits of integrating IR into crowdfunding strategies include:

• Building Investor Confidence: A well-structured IR strategy helps MSMEs present a clear vision, articulate business goals, and demonstrate their growth potential.
• Enhancing Transparency and Accountability: Regular and accurate updates on financial performance and business milestones reduce information asymmetry and promote investor trust.
• Improving Compliance with SEC Rules: Investor relations professionals help MSMEs navigate the regulatory requirements of the crowdfunding framework, ensuring full compliance and mitigating legal risks.
• Attracting Long-Term Investors: Effective communication cultivates relationships with investors who are more likely to stay committed for the long haul, providing stable funding and growth opportunities.

The Bright Future of MSMEs in Crowdfunding

Experts agree that the Nigerian crowdfunding ecosystem is still in its early stages, but the potential for exponential growth is clear. MSMEs that prioritise IR will be better positioned to benefit from this evolving financing model. Moving forward, three key steps are essential:

1. Investor Education: Crowdfunding platforms and IR consultants must collaborate to educate investors on the benefits and risks of supporting MSMEs.
2. Capacity Building for MSMEs: Training programs on financial management, compliance, and strategic communication will empower MSME operators to engage investors more effectively.
3. Adoption of Technology: Digital tools for financial reporting and investor updates will enhance transparency and streamline communication.

With a growing number of MSMEs poised to take advantage of crowdfunding, the role of investor relations has never been more critical. Beyond securing funds, it ensures that these enterprises build the trust and partnerships necessary for sustainable growth. For Nigeria’s MSME sector, investor relations is not just an added advantage—it is the key to unlocking the future of alternative finance.

The Nigerian Crowdfunding Rules provide a vital lifeline for MSMEs, but sustained growth requires more than just regulation. A strong focus on investor relations will not only boost investor confidence but also ensure that MSMEs build long-term, sustainable relationships with their funders.

 

Mr. Enam Obiosio, Managing Director, Astudity Limited, is an expert in Investor Relations practice, and a Public Relations specialist.