N20bn Investors’ Funds In Crowdfunding Schemes At Risk

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Investors in the agritech crowdfunding space are currently at risk of losing their monies, estimated at about N20 billion, as many of the companies are defaulting in payment and have rescheduled repayments of principal and interest in the wake of the Securities and Exchange Commission (SEC) June 30, 2021 deadline for registration of the companies.

LEADERSHIP Sunday investigations reveal that rather than comply with the SEC registration requirement and continuing with their business as it were, many of them are changing their mode of operations and are now defaulting in repaying both capital and interest to their investors.

Crowdfunding allows a person or company to get money by seeking small amounts from a large number of people rather than looking for large amounts from one or two people. Equity and debt crowdfunding are typically great ways for small and medium businesses to raise money.

On a global scene, crowdfunding has become an increasingly important element of agriculture sector financing and Nigeria is not left out. Today, there are several of these crowdfunding start-ups and the most notable ones include FarmCrowdy, Farmsponsor, Greenfold, ReQuid, ThriveAgric, FarmKart, PorkMoney and EZ-Farms Nigeria, among others.

One of the crowdfunding firms, Farmsponsor, in an emailed message to its sponsors (investors) sighted by LEADERSHIP Sunday, said it would stagger repayments over 24 months.

“We have drawn out a new schedule of payment for those of us expecting payout in June, July and August. Your new payout date will be sent to you via email starting today. Please bear with us as payments will be staggered. We are working to make payout as fast as possible but, to be honest, it may take up to 18 – 24 months to finish. Paying everyone at once will eat too deep into our operational cash flow. Let us continue to work to pay you.

“We are sorry for any undue hardship these new payout dates may cause you. We remain committed to paying both capital and ROI,” it said.

Research shows that investors are putting more money than ever into crowdfunded businesses using these platforms. An estimated N20 billion has been raised through this, with the major attraction being the promise of very high returns on investment.

LEADERSHIP Sunday checks showed that returns on investment on these sites range between 35 per cent and 50 per cent or more per annum.
ReQuid, one of the firms, says investors can earn up to “60 per cent cumulative return on investments annually.”

With such returns as incentive, investors have been putting in their money in droves.
One investor who spoke with our reporter said, “I invested N300,000 in Farmsponsor for their poultry. For a period of three months, I was to get back N345,000 being principal and interest. What I used to do was to collect the interest and reinvest the capital and they were consistent before now. The last time I invested I was due for payment in May but I got an email saying because of the SEC rule they were rescheduling their payment. They promised to pay on June 23, but June has come and gone with no payment. Now I am waiting for August 23, the next time they rescheduled the payment to.”

Besides the N300,000 in Farmsponsor, the source who spoke on condition of anonymity, said she also invested about N500,000 in two other agri-tech crowdfunding platforms, Greenfold and ReQuid, and though the payments are due, the companies have yet to pay up, and are also shifting ground on the repayment.
Many other investors have invested and also hoping to get back their monies, it was learnt.
One investor, Muhammed Akinyemi, who took to Twitter to lay his complaint, said he invested N510,000 in farms under Thrive Agric in March and N200,000 in April with the promise of recouping over N805,000 in September.

“Afraid of putting my money where I’ll end up in tears, I carefully selected all the platforms where I was going to put money,” he wrote on Twitter.
Weeks after his investment was due, Akinyemi was told that he will have to wait for up to two years before repayment can be made.

With the plan by SEC to regulate the sector, a number of them are leaving the crowdfunding space, leaving investors stranded.
A message from Farmsponsor to investors said, “The recent SEC cease and desist announcement on all crowdfunding platforms by June 30, 2021 has prompted us to update you with our next line of action.

“Farmsponsor website will no longer operate as a crowdfunding platform to focus on paying out sponsors. We will no longer be crowdfunding for Farmsponsor Poultry Business after June 30, 2021.”

Also, FarmCrowdy, believed to be the pioneer agri-tech crowdfunding platform in Nigeria, said it was as well dropping its crowdfunding operations.
When contacted, a source at FarmCrowdy told LEADERSHIP Sunday that the company was no longer engaging in crowdfunding.

The source said that what the platform does now is to provide direct loans to the farmers. When asked how they intend to get funds to loan to farmers, he said they now work with institutions like the Csteal Bank of Nigeria (CBN) and other development finance institutions to access funds for on-lending to farmers.
“We get funds like the anchor borrowers fund and other available funds and lend to farmers,” he said.

With SEC moving in to regulate activities, stakeholders are of the view that this will bring normalcy to the chaos of crowdfunding operations.
Over the past few years in Nigeria, there have been calls for crowdfunding regulation in order to protect investors who sometimes lose their money to unlicensed market operators.

In April 2020, SEC released draft guidelines for investors and crowdfunding operators. It was the first attempt at creating real guidelines after years of talking about it.

While the draft was a step in the right direction, the SEC finally released new rules for crowdfunding operations in Nigeria last month. It has kept many of the rules from the draft and has clarified some parts that raised eyebrows.

Only an MSME incorporated in Nigeria with a minimum operating track record of two years can raise funds through a crowdfunding portal operated by a registered crowdfunding intermediary. When businesses meet this criterion, there’s a fundraising limit. Medium enterprises cannot raise more than N100 million, while the amount is set at N70 million for small enterprises and micro-enterprises cannot raise more than N50 million.

Meanwhile, these limits do not apply to commodities investment platforms (CIPs). CIPs connect investors to specific agricultural or commodities projects for the purpose of sponsoring such projects in exchange for a return.

Stakeholders have commended SEC for deciding to regulate the crowdfunding space and bring some structure and legality to the activities within the space. They stated that “It is also important for SEC to regulate the space so as to encourage foreign investment and further development of the sector.”

SEC said regulating crowdfunding operations is meant to protect the general public when investing in crowdfunding platforms for underlying Micro, Small and Medium Enterprises (MSME).

According to the commission, the rules governing crowdfunding business in Nigeria came into effect on January 21, 2021, as part of its efforts to ensure investor protection while encouraging innovation in the conduct of securities business.

“In line with the transitional provisions of the rules, all persons/entities operating an investment crowdfunding portal/digital commodities investment platform prior to the commencement of the rules were expected to restructure all operations in accordance with the requirements of the rules and apply for registration not later than 90 days from the effective date.

“While the transitional period elapsed on the April 21, 2021, the Commission hereby directs all existing investment crowdfunding portals/digital commodities investment platforms to note the requirements and eligibility criteria for raising funds through and/or operating a crowdfunding portal and comply with the registration requirements or cease operations by the June 30, 2021, failing which the operations of such platform would be categorised as illegal and attract regulatory sanction as stipulated in the rules.”

For now it is not clear how many companies have complied and registered with SEC or whether there will be an extension to the deadline.

Speaking to LEADERSHIP…

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