What began in the United States as an online drive to raise funds for humanitarian initiatives and charities, has evolved into a thriving industry that is now popular and a reliable mechanism of pooling investment capital without the strictures imposed by traditional lenders such as banks and donors to restrict access to development funds. They call it crowdfunding.

While crowdfunding takes the United States, Europe, Japan and China by storm, the phenomenon is also rapidly evolving in developing countries like Kenya in East Africa, where open and public resource mobilisation methods known as harambee (Kiswahili for pooling or mobilising resources without the support of internet) are expected to borrow a leaf from crowdfunding as a means of shedding uncertainties – sometimes indifference – of traditional lenders.

Soon, banks, financial institutions and lender – multilateral and bilateral –  may be forced to loosen purse strings to appeal to borrowers who are giving them a kick-in-the-teeth as crowd-funding sidesteps the multiple layers of bureaucracy that clients must meet before they access investment capital, among many other needs.

With the crowdfunding transforming into powerful tool for mobilising resources, Tell reached out American philanthropist Alycia M. Barnard to shed light on the mechanics of the phenomenon that has taken US by storm after ‘small-dollar’ sector was recognised by her government as integral to job creation in a money market that had increasingly become stingier and garrulous as it became reluctant to lend to startups.

Ms Barnard is one of philanthropists who registered with SC Crowdfunding initiative that has already pulled in almost 50,000 small-dollar investors from US, Africa, Asia. Europe, Canada, New Zealand and the Middle East, barely wo months after it was registered in the USA.

Barnard explains, “SC Crowdfunding represents a groundbreaking approach to fundraising and investment, combining the power of cryptocurrency, blockchain technology, and smart contracts. Built on the Binance Smart Chain Network, the platform offers speed, efficiency and transparency, enabling participants to grow their wealth with minimal investment. As blockchain technology continues to evolve, SC Crowdfunding stands as a testament to the future of decentralised finance, providing opportunities for individuals to achieve financial freedom and success.”

The comments come back of a decision by insurance companies spearheaded by Lemonade Inc, which are in process of peeling away from the bureaucracy that has made insurance a despised service in many parts of the world.

Cryptocurrency experts explain blockchain as a secure, transparent and decentralised way to keep records and share information. In addition, experts say, blockchain envisions a linked chain of blocks, with each block containing information including transaction data, a time stamp and an identifier called a hash. This chain is akin to a list of transactions that would typically be stored in a paper or digital ledger, only each block contains a copy of all the previous transactions, in addition to the newest information.

Until 2016 when crowdfunding was deemed an online-based networking for social initiatives such building schools, churches, resource centres or roads, this method of fund-raising lacked legal basis to commute it to a source of investment capital for startups. Today, crowdfunding has kick-started a shift from traditional lenders and donors and pooling resources for economic investment for marginalised societies, non-governmental organisations and other institutions devoid of political, cultural, religious or social rigidities that occasion a high a failure rate for even worthy causes.

The modus operandi of crowdfunding concept is embedded in the Jumpstart Our Business Startups (JOBS) Act that came into force in 2016 following a bipartisan support by US main political parties – Republican and Democratic parties. With such legal grounding, crowdfunding seems to have grown wings and is now embraced by businesses around the world. It promises to pull the rag from under traditional lenders and financiers and render their stocks idle or ‘dead’ unless they reset them to give them a humane character. This is because crowdfunding has changed the manner in which such institutions engage with the would-be borrowers and investors.

In Africa, the concept is still alien, although it is attracting interest in countries like Kenya and South Africa. Asked if crowdfunding is a panacea to traditional lenders bureaucracy, Prof Ruth Oniang’o says the concept is not new to Kenyans. The only point of departure is the blockchain technology.

“We do harambee, which they (developed countries) do not know about,” says Prof Oniang’o, a former lecturer of entrepreneurship at Jomo Kenyatta University of Agriculture and Technology.

In Uganda, eminent African environmentalist and political activist Prof Oweyegha Afunaduula gave the topic a wide berth, saying, “”Crowdfunding is something I have not given a thought yet. Let me think about it within the context of the questions you raise.”

Tell Media had asked Prof Afunaduula for comments on how crowdfunding can tame the greed of traditional lenders and if it makes philanthropism more humane. The former Makerere University in Uganda has just published a book titled: History of Uganda Leadership from the British Colonial to the Movement Era: A Treatise  on the Political History and Leadership of Uganda from 1984 to the Present.

In the book, the don takes a swipe at Western donors as impoverishing further developing countries via punitive interest rates and imposition of alien economic models.

When he signed JOBS into law, former US President Obama observed: “This bill is a potential game-changer. Right now, you can only turn to a limited group of investors – including banks and wealthy individuals – to get funding. Because of this bill, start-ups and small business will now have access to a big, new pool of potential investors – namely, the American people. For the first time, ordinary Americans will be able to go online and invest in entrepreneurs that they believe in.”

Crowdfunding has outspan the US and it has been embraced in other parts of the world – especially in developing countries where the thirst for investment capital is phenomenal as traditional lenders become stingier in tandem with geopolitics. Donors, which include multilateral and bilateral lenders, philanthropists and civil society, are not keen to give their funds to governments, organisations and individuals in developing countries and marginalised communities elsewhere in the world.

Using SC Crowdfunding to explains how the concept works, Barnard says participants can earn through multiple levels, with the first two levels providing $10 even without referrals.

“This structure encourages growth and offers participants the opportunity to build and expand their networks while increasing their earnings. Moreover, users have the flexibility to purchase multiple entries, allowing them to maximise their earnings and achieve greater returns beyond the initial $5 investment.

The popularity of crowdfunding stems from the embedded tamper-proof features embraced by cryptocurrency and blockchain technology, which play a central role in the operation of initiatives such as SC Crowdfunding.

Blockchain technology is a decentralised and immutable ledger and records transactions in a secure, transparent, and tamper-proof manner. Each transaction is verified and added to the blockchain, ensuring that funds are secure and distributed accurately.

Cryptocurrency, particularly stablecoins and tokens on the Binance Smart Chain Network, are used for transactions. This choice offers a fast, low-cost and efficient way to transfer and receive funds. With blockchain technology, users can track their investments and earnings in real-time, ensuring complete transparency and trust in the platform.

According to Barnard, “A significant innovation in SC Crowdfunding is its use of smart contracts. A smart contract is a self-executing contract with the terms of the agreement directly written into code. These contracts automatically enforce and execute transactions when specific conditions are met. This technology eliminates the need for intermediaries, reducing costs and increasing efficiency.

“On SC Crowdfunding, smart contracts facilitate and manage investments, earnings, and payouts. When a participant invests in the platform, the smart contract verifies the transaction, locks in the amount and ensures payouts are executed based on the platform’s rules. This automation reduces human errors and enhances the integrity and reliability of the crowdfunding process.”

According to US-based  Lemonade Inc, blockchain technology is decentralised and maintained by many computers called nodes. Each node contains a copy of all the linked blocks of information. This creates redundancy, transparency and immutability, making the blockchain very difficult to modify or manipulate without consensus among many parties.

While the technology is often synonymous with cryptocurrency because it is programmable, the use of “smart contracts” on the blockchain provides greater utility beyond the trading of Bitcoin.

A smart contract is defined as a series of rules that are programmed on a blockchain. If a predetermined condition or event occurs, and that event or condition is verified by the nodes, a smart contract will self-execute steps programmed on the blockchain, without human interaction.

Smart contracts are attractive because they are programmable, which enables financial service companies to build compliance requirements including Know Your Customer (KYC), data privacy and other features into the automated process flow.

In addition, smart contracts have been found to be faster, more efficient and more accurate than typical processes. Because they are digital and automated, experts say, there is nothing to file or process and there is no time spent reconciling errors or dealing with paperwork that is not in good order.

In blockchain technology, trust and transparency levels are high because there are no humans involved and everyone operates with the same secure information. It is nearly impossible to self-deal or change information for someone’s benefit. Besides, the security of any transaction is high because the nodes authenticate and record information, which makes them harder to hack. Since the blocks are connected, and each has the sum information of all previous blocks, it is impossible to alter a single entry, unless a new blockchain replaces the existing one.

Smart contracts are inexpensive because there are no intermediaries running them or the typical problems that go along with humans. Once implemented, they reduce the cost of infrastructure. They are also scalable in a way that manual processes are not, because they do not require hiring and training.

In the insurance industry for instance, smart contracts have the potential to recreate the functions of an insurance company, such as by pooling premiums, assessing risk, and distributing claims, all without the need of a centralized entity to manage its operations. At present, there are two main categories of smart contracts for the insurance industry: replacement of existing traditional insurance policies and mitigation of financial risks through use of a blockchain.

It is against this backdrop that SC Crowdfunding operates. It operates on the Binance Smart Chain (BSC) Network, a blockchain network specifically designed for creating decentralised applications (dApps). The BSC network is known for its highspeed, low transaction fees, and scalability, making it an ideal choice for decentralised crowdfunding platforms.

The Binance Smart Chain Network supports smart contracts, enabling SC Crowdfunding to operate efficiently. Transactions on the BSC Network are faster and cheaper than those on traditional Ethereum networks, offering users a seamless and cost-effective experience. With BSC’s advanced technology, SC Crowdfunding can ensure that participants’ funds are secure, transactions are verified quickly and payouts are delivered promptly.

The concept is also espoused by Nexus Mutual, another America insurance firm with a global clientele base. Nexus Mutual is a leader in the blockchain technology. The protocol allows users to create or join insurance pools covering a wide range of economic activity on the Ethereum blockchain. Many of these pools provide protection against exploits, oracle failures, liquidity runs and governance attacks for various protocols.

Currently, over $190,000,000 is collectively pooled on Nexus Mutual and over $18,000,000 in claims have been paid out since its inception.

Although smart contracts, such as the ones created by Lemonade, Etherisc, and Nexus Mutual are still in their infancy, their ability to reduce operational costs and facilitate efficient, secure, and accurate payouts may offer considerable advantages over traditional insurance products. As individuals look to reduce their premium payments while still offsetting risks in the emerging ecosystem of decentralised finance, insurance smart contracts will continue to grow.

Overhaul of bureaucracy n resource mobilisation, accountability and transparency form the centrepiece of crowdfunding, according to blockchain technology champions.

• A Tell report / By Juma Kwayera