By Nicholas Bryan
Crowdfunding has grown significantly in the last few years, especially in the United States and Europe. The equity crowdfunding market is valued around $1.7 billion annually with total value of deals invested per year to growth to reach $5 billion by 2022. Much of this growth can be attributed to developing countries adopting equity crowdfunding for their new businesses. Currently, developing countries, such as Africa and South America, have the highest percentage of individuals starting their own businesses with Nigeria having as high as 40% of total businesses. The problem for these startups is the lack of access to traditional banking. In turn, these startups have to get creative, which is why most will turn to equity crowdfunding as a way to raise capital. The World Bank has estimated that there is chance to reach up to 334 million people in emerging economies through crowdfunding.
Alternative Investments with Higher Yields
A big driver among investors to push investments into emerging markets is the low interest rates throughout Europe and the U.S. Investors are looking for alternative investments with higher yields, and are turning to outside markets. These new developing economies are offering individuals from wealthier countries higher returns for their investments than those of developed economies. The U.S. dollar is also considerably stronger compared to developing countries, which means an investment in these developing countries can go further to possibly fuel even more growth into the future.
Many investors considering emerging markets can be apprehensive because of the possible lack of familiarity with the market or a shortfall in confidence in the entrepreneurs. Investors fail to realize that the risk of default on investments in developing countries is lower than the risk of default in developed countries. Typically, the rates offered through crowdfunding are better than those offered by the banks in countries. This means businesses are more equipped to pay out interest to investors for their investments.
Location Portfolio Diversification
Investors who are seeking to diversifying portfolios into different geographic regions, as well as into different asset classes, may want to consider investing in emerging markets like Africa and South America. These countries have high rates of individuals starting new businesses with plenty of growth opportunity going into the future as they adopt modern technology. This growth coupled with the strong U.S. dollar compared to local currencies can be a lucrative investment.
Apprehension of emerging markets investments is valid, but the low default risk makes most investments worth looking into. Also, crowdfunding’s low minimum investment amounts makes it possible to spread risk across multiple projects in different markets. Equity crowdfunding is providing new investment opportunities everyday in Africa and Latin America and energetic entrepreneurs are looking for investors like you to fund their next business.