Photo by Pujohn Das on Unsplash

Harambee! How Crowdfunding Can Revolutionise Green Finance

In a satirical essay titled “Harambee” from his book, How to be Kenyan the late Wahome “Whispers” Mutahi begins:

Bank managers are not everybody’s friends. Even when they listen sympathetically to a loan application, the interest they charge is not friendly. But who said that banks are the only source of money? Who said that one must pay when he cannot pay?

Unfortunately, these gatherings that are usually for noble causes such as medical, education and funeral bills have gotten a bad rap. As Mutahi hilariously elaborates ways in which fundraisers or Harambee, are used to line people’s pockets. Alternatively, this same spirit of pooling together private funds for a good cause can be rallied to address a pressing glocal issue: climate change.

As previously shared, in order to prevent global temperatures from reaching 2 degrees above pre-industrial levels, all hands are required on deck. While there have been notable efforts by various stakeholders,there still exists a huge climate finance gap that the public sector can not plug alone.

Enter Crowdfunding

Crowdfunding (CF)is a subset of alternative finance that leverages internet-based platforms to raise funds in the form of donations or investments from multiple individuals. Much like the Kenyan scenario, this form of traditional finance grew in the developed countries after the 2007–8 financial crisis as banks were slow to extend credit to startups particularly creatives whom they deemed to have high risk profiles. However, with the expansion of the internet and related technology, crowdfunding has become more formalised and sophisticated. Nowadays, crowdfunding platforms such as Kickstarter, Patreon, Kiva, Movement Capital (formerly Homestrings) and Indiegogo have expanded to markets such as US, UK, Australia, Italy and Netherlands. [See the table below for CF taxonomy]

Source: FSD Africa and AlliedCrowds (2016)¹

CF has been spurred on favourable regulatory and business climate, strong social media penetration and internet usage, regulated online market place as well as strong collaborations between various stakeholders. Developing markets such as China, Nigeria, Kenya, South African and South American countries have also experienced a surge in CF investing as most of them target diaspora remittances. Neverthless, emerging markets still need to streamline their legal and regulatory frameworks to accomodate CF in their financial eco-system.

Why Crowdfunding Is Suited for Green Finance

Despite the call to action and various global initiatives, citizens remain the foot soldiers in the addressing climate change on a daily basis. As consumers, savers and citizens, people need to be incentivised to contribute to the low-carbon transition by linking consumption and investment choices to the broader picture.

Coupled with shifting their lifestyle choices such as purchasing eco-friendly laundry detergent and slow eating, individuals can support the green economy by putting money where their mouths are. By participating in this untapped finance, they can satisfy their innate desire to contribute to the common good.

From a business-policy perspective, crowdfunding can be quite instrumental in small-scale mitigation and adaptation actions especially in areas such as renewable energy, energy efficiency, climate smart agribusiness, water management and sustainable urban development. CF can assist climate-smart projects and initiatives to transition more smoothly over the infamous ‘financial death valley’ [see the figure below] so that they can eventually be able to access mainstream capital.

Source: InfoDev Report

Green crowdfunding has a number of benefits²:

  • The merging of social media networks with entreprenuerial finance enhances efficiency and transparency. Data is centralised on digital platforms from early-stage entrepreneurs which helps investors to navigate numerous potential investments and determine which ones fit their portfolio strategy, risk appetite and other criteria.
  • The presence of digital platforms removes geographical barriers which also expands the range of investments. Hence it is much easier to mobilise than public funds and official development assistance (ODA).
  • MSMEs are able to test their markets and measure their product demand by launching in phases which reduces risks and losses. They are able to explore product viability and engage with early adopters at lower (marketing and operating)costs with low barriers to entry.
  • Customers and investors become a rich source of feedback with the potentially of being their product evangelists. This collated information can be useful in revising the start-ups’ business models.
  • Most importantly, projects with a green label tend to attract a form of “greenium” ( green premium) which is important not only in publicity but also for the ultimate goal of reducing greenhouse gas emissions.

Let us consider Bettervest, a renewable energy focused crowdinvesting platform as an illustration. Bettervest enables people to invest as little as EUR 50 and benefit from green returns and lower CO2 emissions. On the other hand, project initiators are able to save money and energy. One of its most successful projects includes raising EUR 110,300 in 19 hours and 1 minute to fund the revival of climate-friendly landfill gas projects in Cartajena and Pirgua-Tunja in Columbia. Thanks to the participation of 197 investors, the campaign exceeded the EUR 72,210 target. Moreover, these projects are projected to avoid 146,214 tons of CO2e from being emitted per year. This is roughly equivalent to the annual emissions of 77,362 Columbians.

Bettervest has also worked with the Bonergie to successfully open 8 solar boutiques in Senegal in early 2017. They invested EUR 106,500 over 7 year team and with 7.25 percent ROI with the expectation that the project will provide clean energy to rural population in Senegal as well as job creation. The franchisees are expected to repay the purchase prices and financing costs to acquire and operate within 3 years.

Similar to Bettervest, Ecoligo is engaging crowdinvestors to finance solar energy systems in developing countries like Kenya. However, they focus on commerical and industrial energy offtakers with the payment options of either lease agreements or power purchase agreements. This in turn means that they have lower energy costs than from the national grid and the crowdinvestors also benefit from green proceeds.

The solar start-up was able to successfully raises EUR 107,000 with 5.5 percent ROI within 7 days through its online platform in 2017. The proceeds were used to finance a 66 kWp solar installation to Penta Flowers in Thika Kenya and will be repayed over 5 year period.

Why Green Crowdfunding Is Suited for Kenya

The above Harambee anecdote paints a scenario that may have partially informed the current interest rate regime in Kenya. The capping of interest rates through the Banking Amendment Act (2016) that was intended for the common good has shown initial evidence of contributing to slowdown in private sector credit. Financial institutions are even more selective of their loan portfolio clientele as they are more risk averse. Unfortunately, this has a rippling effect as innovative SMEs that promote the low-carbon economy through their product and service offerings.

CF has emerged as an avenue to help SMEs to meet their triple bottomline. Similar to other countries in sub-Saharan Africa, CF is fuelled by the growing middle class, the rapid adoption of mobile technology and real market need.

A 2017 report by FSD Africa and Cambridge’s Centre for Alternative Finance (CCAF) indicated that in 2015, around USD 22 million was raised in Kenya, with an additional USD 8.5 million raised in Q1 2016. Figures showed that two-thirds of the market activity was dominated by donation-based crowdfunding accounts with the rest provided by non-financial return-based lending models, such as Kiva. These figures are quite plausible given Kenya’s track record as an innovation leader within the alternative finance with mobile money initiatives. These also suggest the potential that can be harnessed if some funds can be directed to low carbon projects.

In addition, diaspora remittances have competing with foreign direct investment (FDI)flows in developing countries as diaspora members are emotionally driven to contribute to the development of their home countries. It also reflects the international community’s interest in a given country.

Homegrown platforms such as M-Changa and CMA and National Treasury’s M-Akiba that have opened up opportunities to retail investors but are still gaining traction.

Risks and Challenges

Despite the above benefits, crowdfunding is still plagued with a number of challenges especially in the green space³:

  • This form of finance targets investors across the board but ‘man on the street’ investor maybe not be well versed in financial and project management terms. Hence, the platforms shoulfd clearly communicate their projects and their related risks.
  • SMEs especially those using donation based funding may not fully consider fulfillment risk which factors in operational issues, tax issues and other essentials of their business models. They also need to differentiate between “intention to produce” and “capability to differentiate”.Therefore policies should consider handling partial refunds or alternative gifts.
  • Research has shown that 50 percent fail within 5 years. Hence, businesses anchored by CF investing should ensure that they understand risks involved including the lack of guarantees, liquidity limitations and other potential pitfalls. This risk might also be allayed by receiving third party validation .
  • Most businesses and governments have fraud and money-laundering concerns. Businesses are challenged to comply with national and international terrorist financing and anti-money laundering laws in the footsteps of Kickstarter, Indiegogo and RocketHub⁴.
Crowdfunding risks via FSD Africa, CCAF and A&K

Fitting In

Currently, there are no exisiting tailored legislations for crowdfunding in Kenya and in East Africa in general. Current CF platforms are riding on existing frameworks governed by the Communications Authority, Central Bank of Kenya and Capital Markets Authority.

Further , although CF is being perceived as an alternative to mainstream finance, these firms should also consider collaborations. Partnering with formal financial institutions to deepen financial inclusion especially in this interest rate cap regime. For instance, aside from the usual corporate financial services, Royal Bank of Scotland (RBS) has committed to signpost small businesses in the UK to alternative finance providers such as Funding Circle, in the event that they do not meet their eligibility criteria.

Bringing It All Together

Novelty is always accompanied with some form of trepidation. However, information is always a formidable ally in allaying fear of the unknown. Therefore, it is important for all stakeholders to study this form of alternative finance with its associated risks and benefits especially in the green space. This can be done through capacity building starting from the regulators and having an official registry to track their operations. Members of the financial ecosystem should setup a forum to further interrogate how CF can be regulated. They can pick best practices from the UK Financial Conduct Authority’s (FCA)regulatory sandbox and other developing countries as benchmarks and then tailor them to Kenyan needs.

All things considered, the only way in which climate change can be mitigated is by humanity tapping into all its resources and means such green crowdfunding to address it.


  1. Funding the Frontier: The Supply-side Crowdfunding Landscape in East Africa in 2016 Finacial Sector Deepening-Africa and AlliedCrowds. Nairobi [Available here]
  2. Crowdfunding’s Potential for the Developing World (2013). infoDev, Finance and Private Sector Development Department. Washington, DC: World Bank.[Available here]
  3. Ibid
  4. Crowdfunding in East Africa: Regulation and Policy for Market Development (2017)Finacial Sector Deepening-Africa, Cambridge Centre for Alternative Finance and Anjarwalla & Khanna(2017).[Available here]