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Nigeria’s New SEC Crowdfunding Rule And Its Implication For Public Investors And Startups In Nigeria

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Recently, the Nigerian Securities and Exchange Commission (SEC) announced that it had approved a new set of rules to guide crowdfunding activities in Nigeria. This is coming after the exposure draft that was published by the SEC in 2020. 

Crowdfunding has proven to be a useful fundraising option for startups in Nigeria, although a lot of fraudulent and highly-risky investment platforms with unreasonably high ROIs have also utilized crowdfunding to generate capital. Most of the Nigerian startups that engage in crowdfunding to raise capital are Agritech startups, like Farmcrowdy, Thrive Agric, Farmcart and ChubiAgro, who receive funds from the public to finance agricultural activities, offering a promise of paying back the capital plus a typical 15-30% ROI to investors after a few months. 

Before the introduction of the new rule, crowdfunding activities in Nigeria have been largely unregulated, which has left investors in a pool of financial risk. This new rule will redefine the rules of operations in crowdfunding engagements and protect investors from extreme risks. 

According to the new rule, startups(fundraisers) who intend to raise capital through crowdfunding will only be able to do so through a Crowdfunding Intermediary (CFI) that will facilitate the crowdfunding process. The funds will now have to be pulled from the public through an approved Crowdfunding Portal.

The CFIs must also ensure that the fundraisers disclose sufficient information to investors on what the funds are meant for and how they will be used. This will ensure that investors fully understand everything that is involved with the investment they are making. 

The SEC rule also provides clear details on who can raise funds through a Crowdfunding Portal that is operated by an approved Crowdfunding Intermediary. Crowdfunding is now restricted to;

  • Micro, Small and Medium Enterprises (MSMEs) incorporated as a company in Nigeria and have been operating for a minimum of two years
  • MSMEs incorporated in Nigeria which have been operating for less than 2 years but have a “strong technical partner that possesses a minimum of 2 years operating track record or has a core investor.

The rule also declares the maximum amount that can be raised by startups within a 12-month period, restricting the maximum amount to ₦100 million (260k) for Medium enterprises, ₦70 million ($182k) for Small enterprises, and ₦50 million ($130k) for Micro enterprises. However, exceptions are made for Commodities Investment Platforms, which the SEC defines as electronic platforms that connects investors 
to specific agricultural or commodities projects for the purpose of sponsoring such 
projects in exchange for a return. For CIPs, like Farmcrowdy, the maximum amount that may be raised through an approved Crowdfunding Portal within a 12-month period is N1 billion ($2.6m). 

Overall, one of the advantages of the new set of rules is that it puts a lot of requirements in place to protect investors from incurring avoidable financial losses or falling victim of a fraudulent fundraising activity. In line with the new rules, retail investors may be restricted from investing more than 10% of their net annual income, preventing them from putting in all or nearly all of their money and losing it. The official recognition and regulation of crowdfunding will also increase the trust of the public in crowdfunding activities since they are now well regulated, which, in turn, makes it easier for these startups to raise capital from the public.

However, the maximum amount that can be raised by startups that are not Commodity Investment Platforms is small relative to those of other countries. In the US, startups can raise as much as $5 million through crowdfunding, while South African startups can raise up to $2.5 million through crowdfunding. This is far above the maximum ₦100 million ($260k) that can be raised through crowdfunding by Nigerian startups.  
The requirements for startups that are eligible for crowdfunding also restricts very-early-stage startups from raising funds from the public to accelerate growth and expansion. 

 



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Crypto Assets

Crypto prices drop as global market fear increases

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Top cryptocurrency prices have fallen amidst a drop in stocks and fears over China’s Evergrande debt crisis. In the last 24hour, Bitcoin dropped from $47,772 to $42,630 shedding about 8.58%. this is the lowest in price since another bull run began on Sept 5 after the April crash.

El- Salvador’s President, Nayib Bukele sees the fall as an opportunity to invest more. Recall that the country adopted Bitcoin as a legal tender on September 7. Despite the adoption, the price of Bitcoin has fallen by almost 14% since then.

Other coins have experienced dramatic crashes within the last 24hours. Solana, a coin that has experienced 355% growth within the last 3 months fell from $162 to $130 shedding about 11.39% within the last 24hours. Solana’s fall may be categorized by the 17-hour outage which the founder, Anatoly Yakovenko said was caused by bots “flooding the networks”

Ethereum fell by 9.37% while Dogecoin and Axie Infinity fell by 11.22% and 14.14% respectively within the last 24hrs hours. While crypto experiences dark Monday, El-Salvador keeps investing more money in Bitcoin.

A look at the global market

The global market is experiencing fear due to the Evergrande debt crisis. A report published by the University of Michigan shows that consumer’s sentiment is beginning to decline. This trend alone may impact the crypto market as well.

On the other hand, the global market downturn must have been spurred by the Evergrande debt crisis. The company grew to be one of China’s biggest companies by borrowing more than $300bn. Last year, Beijing made rules to control the debt owed by big real estate developers. This led Evergrande to offer its properties at major discounts to raise more money to keep the business afloat. Right now, the company is struggling to meet the interest on payment of debts.

Why would it matter if Evergrande fails?

The collapse of the multi-million dollars company would affect the global market; including the crypto market. Many people bought properties from Evergrande and they expect to make gains. If Evergrande falls, crypto investors will be forced to withdraw more money to keep their business running without the means to invest more. When one business fails, the other gets affected indirectly. This also applies to other firms that do businesses with Evergrande.

The potential impact on China’s financial system is another effect of Evergrande’s fall. In his statement to BBC, Mattie Berkink, the Economist Intelligence Unit (EIU), said that “the financial fallout would be far-reaching. Evergrande reportedly owes money to around 171 domestic banks 121 other financial firms” if the company fails, other lenders or businesses may be forced to lend less. Thereby leading to a credit crunch- a situation where companies struggle to borrow money.

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Bitcoin in Africa

The rise of CBDC in African economies

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Many nations have taken cues from the world of crypto and its resounding successes over the last decade. In order to avoid getting left behind, governments worldwide are increasingly turning their attention towards implementing some form of digital currency, a CBDC which in full is Central Bank Digital Currency. Although inspired by cryptocurrencies, CBDC’s are quite different from traditional crypto platforms. The main differences are that CBDC’s are unlikely to be decentralized, the supply of this currency regulated by the host’s country’s central bank as the CBDC is designed to operate as a sovereign legal tender, the digitized form of the host country’s fiat currency. Thus, a central bank may issue digitized tokens of its currency of which their value is pegged to the fiat currency of the nation in question, making CBDC’s stablecoins.

Africa has seen a rise in the use of cryptocurrencies and it’s still pushing frontiers in this sector. Although the use of crypto in many African nations is becoming more and more pervasive by the day, the tone of governments in many of these countries toward the sector is cautious at best and threatening at worst. However, a few nations have voiced interests in creating digitized versions of their legal tender to function as a CBDC. Amongst these are Ghana, Nigeria, Morocco, Kenya and Tunisia.

Many of these projects are still in the research phase or developmental phase however. A good example is Ghana’s proposed CBDC, the E-cedi being developed in partnership with German company, Giesecke + Devrient. Nigeria’s CBDC project, the eNaira has been announced and according to Nigeria’s central bank, this CBDC will be launched sometime in 2021. To that end, the CBN has partnered with fintech company, Bitt Inc. to serve as the technical partner in the eNaira’s development. Reportedly, the CBN had made the decision to digitize the Nigerian Naira in 2017.

While the pursuance of digital currencies in African nations is a welcome development, implementation of these schemes isn’t without challenges. Chief among the issues countries in Africa face would be the already existing financial service inequality and poor penetration of internet access in the continent. These challenges must be tackled in order to allow for mainstream adoption of CBDCs and the subsequent provision of financial inclusion. The benefits largely depend on the peculiarities of the nation deploying them. For instance, a digital currency is thought to help Nigeria increase foreign remittances, it’s second largest source of forex after oil. Whatever the outcome of these projects, it is becoming apparent that CBDC’s have come to stay.

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Bitcoin trades above $51k ahead of El Salvador’s adoption

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Bitcoin growth

Bitcoin price has rallied above $51,000 ahead of El Salvador’s adoption. The immediate surge in price may be due to the social media campaign that everyone should buy sats of Bitcoin to support El Salvador’s plan to make the coin a legal tender or it may be due to the news of El Salvador’s adoption of the coin as a legal tender on September 7. Users of social media platforms like Twitter and Reddit are discussing how they will buy Bitcoin of $30 each to mark the new El Salvador Bitcoin law.

The surge in Bitcoin’s price began in the last 24hrs with the price rallying around $51,955 with a 3.37% increase. This is an all-time high after the April crash that brought the price of Bitcoin from $64k down to $28k. The move by El Salvador to be the first country that accepts Bitcoin as a legal tender and the social media campaign that leads to a surge in price ahead September 7 are a repetition of events that occurred late last year and early this year with regards to institutional investors and how the price of Bitcoin skyrocketed.

El Salvador, a country in Central America, has been preparing heavily to adopt Bitcoin by installing ATMs to allow citizens to convert the token into US dollars. Last week, the country’s Legislative Assembly passed a law to allow for the creation of a $150m Trust to support the conversion of Bitcoins to US dollars.

To promote the use of Bitcoin, the government states that it will give the adult population of El Salvador $30 in Bitcoin once they download “Chivo” the wallet issued by the government. This was confirmed by the Finance Minister, Alejandro Zelaya.

What this means for Bitcoin investors

Apart from the adoption by Salvadorians, on-chain analytics show that Bitcoin is in high demand. The fourth halving that occurred will make Bitcoin become a scarce token in the nearest future. Thereby increasing the price sporadically.

With El Salvador’s interest in Bitcoin, other countries are likely to follow suit- Panama is considering following El Salvador’s lead. History will repeat itself as this development will serve as another crypto rout that occurred early this year when Tesla and MicroStrategy announced their support for Bitcoin.

El Salvador’s new law allows the use of Bitcoin as a legal tender it can be used to buy goods, pay for taxes and bank loans. This means more demand for Bitcoin, with the fourth halving that occurred, it means less supply. A common rule of economics for demand and supply will apply. Prices are projected to keep rising. At the time of writing this report, Bitcoin is trading at $51,839 with a projection of $52k before the end of today and higher tomorrow when Salvadorians begin to use the token.

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