africa innovation summit: alternative finance

Innovative and non-traditional financing options

Homestrings: enabling Diaspora Crowdfunding

What are the facts?

• What we know about Diaspora capital flows:– US$450B in remittance flows from West to

Emerging Markets (10%-15% per year) - WB

– US$40B in flows into Africa alone (P2P)

– Conventional Wisdom: Subsistence Consumption

What do Remittances say?

• Remittances outstrip any other form of flows– Size

– Resilience

• Do Remittance flows = Diaspora Investment Flows?

• What do we know about remitters and our motivations…

GWU – Western Union Research

• GWU-Western Union Afro Migrant Study:– About 1,000 members of US-based African

Diaspora were surveyed – sponsored by WU

– Research Objectives:• Profile?

• Investment interest and activity?

• Obstacles to investments?

• Diaspora investment advantages?

• Investment motivation?

GWU-WU Findings (1)• Profile?

– Average stay in the US: 22.18 years

– 72.2% plan to return “Back Home”

– Average age of respondent: 46 years old

– More than 50% have annual incomes in excess of US$ 100,000

– Average remittance in past 3 yrs: US$12,974 (std dev: US$22,873.)

GWU-WU Findings (2)• Demographics:

GWU-WU Findings (3)• Risk Tolerance

GWU-WU Findings (4)• Contact with “Back Home”

GWU-WU Findings (5)• Investment Interest (%)

GWU-WU Findings (6)• Investment Activities (%)

GWU-WU Findings (7)• Diaspora investment motivation summarized:

•Financial

•Emotional

•Social-status

•Political

Implications?

• How to translate into a palatable proposition?

• Need to:– Facilitate Access to Impactful Opportunities

– Provide Reasonable Prospects for Returns

– Provide Process Transparency

– Address Voice Mechanism

• Must do this in a single proposition…

Solution…

Next Steps?• Diaspora and Other interested Investors

• Registering at the average rate of 100 a month

• Growing book of Opportunities• Private Equity Funds

• Diaspora Bonds (gvts, companies)

• Housing (investment, lending, buying)

• Deals (co-investment and stand-alone)

Case Studies I – Diaspora Bonds

• Sovereign Infrastructure Bonds issued

• Pay coupons on semi-annual basis

• Maturity between 5 – 12 years

• Yields between 5%-15% (local currency)

• Financing Roads, Water and Power

• Countries: Kenya, Ghana, Ethiopia, Nigeria

• Looking at Corporate Diaspora Bonds…

Case Study II – SMEs• Key challenge – Selection and Governance

– Partner with experts: private equity funds

– Filter per key criteria

– HS Members vote and commit

– Co-invest with PE funds

– Industries: manufacturing, retails, real estate…

Can crowdfunding evolve and disrupt how we support startup and innovation culture in Africa? ■ Yes, it’s a powerful tool: small amounts, large

global exposure and participation. Success will rely heavily on company selection and investor services not to mention global regulatory constraints.

What challenges will have to be met in order to reach potential crowd investors in Africa (i.e. low internet connectivity, limited percentage of people with credit cards, etc) and can we innovate towards that goal?

■ Regulatory constraints are key■ Payment methods innovations such as mobile banking,

virtual currencies are not taken advantage of ■ connectivity is less of a concern as Africa goes web 3.0

How can we grasp the momentum of crowdfunding to create and promote the next big innovation in financing for start-ups & SMEs in Africa? ■ Crowdfunding will always be a source of innovation and

this will be the case in particularly for SMEs in Africa.

How can existing traditions and cultures on the continent, that support group saving and group financing offline at the community level, be leveraged to drive the evolution of crowdfunding online in African countries?■ Education is key; it will take time since those savings

may not be appropriate for the kinds of risks offered up in SME crowdfunding and investment.

What policy reforms and changes to institutional frameworks will have to take place in Africa to facilitate the growth of crowdfunding?■ Experience is a key factor, and so is time - as this will

require a while to get to scale. Once attained however, it will actually benefit from acceleration!

How can existing platforms better target and leverage the purchasing power of the African diaspora to crowdfund homegrown initiatives? ■ This is already happening with

Homestrings. It’s a matter of building trust and bringing relevant experiences to the Diaspora investors.

Case Study III – Real Estate• Top Developers: Kenya, Ghana, Nigeria

• HS members have 3 options:– Invest in mortgages

– Invest in housing projects

– Buy units directly from Builder

• New Opportunity: Buying Cities (Renaissance)– Ghana and Kenya

Investing in Cities on HS?• RPI will divide up each planned city into key

investment opportunities:– Commercial Real Estate (Malls, Stations, Offices)

– Residential Real Estate (Gated Communities, Lots)

– Roads, Power, Public Services (Municipalities)

• Investment instruments available per:– Bonds (5yr, 10yr)

– Equity (Operating Company)

Key points:• Homestrings

– a repository of investment opportunities for Diaspora and other investors

• Homestrings

– a platform for vetted project promoters

• Homestrings

– first impact investment “shopping mall” for the Diaspora

How can you get involved?• Invest

– access the Homestrings members catalog

• Promote

– Your project, fund or bond on Homestrings

• Participate

– Diaspora Investment Symposium

– Investing in Nigeria, March 7th, London

http://nigeriainvest.eventbrite.co.uk

Contacts

• Eric V. Guichard, Founder and CEO eric@homestrings.com

• Annie Melnic, Chief Community Officer amelnic@homestrings.com

• web: homestrings.com

• @Homestrings - facebook.com/Homestrings