Israel dominates equity crowdfunding market activity in the Middle East

A total of $242 million (£193 million) in online alternative finance funds was raised across both Africa and the Middle East in 2015, of which Africa registered $83.2 million (£66 million) and the Middle East $158.8 million (£126 million), the first study that systematically reports the state of the art of crowdfunding and p2p lending sectors in Africa and the MiddleEast by covering 46 countries in the former and 12 in the latter, with data gathered from over 70 alternative finance platforms, found out.

Distribution of Platforms.PNG
The Geographical Distribution of Surveyed Platforms, 2015. (Source: Cambridge Centre for Alternative Finance)

Jointly produced by the Cambridge Centre for Alternative Finance (CCAF) and Energy 4 Impact with the support of UKAid and CME Group Foundation, the survey pointed out that in 2015, over 75 percent of the total online alternative finance raised from Africa and the Middle East region was funding for start-ups and SMEs, with $62.2 million (£50 million) raised across Africa, and $132 million (£105 million) across the Middle East where equity-based crowdfunding accounted for 67 percent of the total market volume.

Market Share.PNG
Market Share by Alternative Finance Model in the Middle East, 2015. (Source: Cambridge Centre for Alternative Finance)

In this respect, serving SMEs and startups, equity-based crowdfunding raised an average of close to $3 million (£2.4 million) per deal, with an average 41 investors participating in each individual fundraise (an average investment size of $70,000 or £56,000). However, the model is strongly skewed by the large volume of equity crowdfunding in Israel, which dominates equity crowdfunding market activity in the Middle East.

Average Deal Size and Number of Funders by Model in the Middle East. (Source: Cambridge Centre for Alternative Finance)

In spite of that, both the African and Middle Eastern online alternative finance markets are showing signs of decelerating growth.

In particular, the Middle East experienced an annual growth rate of 152 percent from 2013-2014, but from 2014-2015 that rate fell to 75 percent. In this context, Israel is the market leader in the Middle East with $124.3 million (£100 million) raised in 2015.

Israel will host world’s biggest equity crowdfunding conference in Jerusalem on 16 February 2017. (Source: Oliver* | AllThingsAltFi*)

With regard to the African market, Kenya and South Africa are the market leaders in Africa with $16.7 million (£13.3 million) and $15 million (£12 million) raised respectively from online channels in 2015 while the East Africa region has the largest market share of the African alternative finance market. In fact, in 2015 East Africa accounted for 41 percent of total African market share, while West Africa accounted for 24 percent and Southern Africa accounted for 19 percent.

One of the main reasons behind the decelerating growth of the alternative finance industry in both Africa and the Middle East it seems to be the lack of bespoke regulatory regimes and specific alternative finance policy developments, experts argued. As a consequence of this, for example, the greatest perceived risk by the industry in Africa and the Middle East region is ‘fraud’.

Proportion of Survey Respondents Perceiving Risks to their Regional Alternative Finance Industry as ‘High’ or ‘Very High’. (Source: Cambridge Centre for Alternative Finance)

Robert Wardrop, Executive Director at  Cambridge Centre for Alternative Finance said:

Robert Wardrop, Executive Director at CCAF

Findings like these raise several new research questions about the development of alternative finance in these regions. How will the high levels of alternative payment system adoption in some countries impact the future growth trajectory of alternative finance in those markets? Will the philanthropic online funding outside of Africa evolve into innovative, next generation FDI channels for equity and debt finance inside Africa?