- They are mostly wonder banks – Financial experts
By AYOOLA OLAOLUWA
Risks for investors in Nigeria’s hitherto stable agric crowd-funding industry is piling up with default in the payment of assured returns on investments (ROI) by firms escalating in the last one year.
According to the Securities and Exchange Commission (SEC), crowd-funding is the process of raising funds to finance a project or business from the public through an online platform. It exists in three forms: donation-based, reward-based and equity-based crowd-funding, with investors getting to share in the profits made from loans given out to farmers.
In Nigeria, agric crowd-funding platforms have become attractive options to farmers for raising funds due to the difficult nature of securing loans from commercial banks. Apart from the provision of cheap funds to farmers, they also offer mouthwatering returns to investors, ranging from 25% to 50%.
In other words, Crowd-funding firms typically use the sponsor’s funds to engage and insure farmers and their produce, complete the full farming cycle and sell the harvest. They then pay the farm sponsor a return on his investment.
Checks revealed that the first sets of agric crowd-funding platforms began operation in the country around 2010. Some of the leading firms which connect farmers to finance through peer-to-peer financing, include Farmcrowdy, Farmkart, EZ Farming, Thrive Agric, FarmFunded and ChubiAgro, among many others.
Available data shows that operators have sourced over N20 billion for agricultural investments using the power of the crowd since the inception of the innovation. However, many crowd-funding firms have started to default in paying the mouth watering returns it promised its customers. One of such platforms is Thrive Agric.
Some Nigerians who invested in the outfit alleged that the company has continually failed on its promises to pay them the expected returns on their investments, despite several promises.
Some of the worried investors said they invested between N1million and N5million in January and expected to be paid by September. They however said the company appealed for patience and promised to pay by October, a promise they claimed it has not fulfilled.
An investor with Thrive Agric, Mr. Muhammed Akinyemi, said he invested the sum of N710,000 with the firm with the expectation of getting back N805,000 within six months.
“I was introduced to the scheme in January 2020 by a friend who told me the company is very reliable. After I was convinced, I first put in the sum of N510,000 in a farm under Thrive’s management in March, and another N200,000 in another farm in April, making it N710,000 in total.
“I am a very careful person and don’t indulge in get rich quick schemes. Afraid of putting my money where it’ll end in tears, I carefully selected all the platforms where I was going to put money.
“I took advice from people, who, either have money on those platforms, had used those platforms, or knew someone who is a part of the platforms. Asides the referrals, I also checked if the businesses had insurance policies that will guarantee protection in case things go sour. I did everything right. You can’t say I am greedy because my profit, which is only N95,000, is reasonable”, cried Akinyemi.
Akinyemi said he received the biggest shock of his life when he approached the company at the end of September, only to be told that he will have to wait for up to two years before repayment can be made.
Apart from Akinyemi, several other Nigerians investors have cried out for help over their inability to get back their initial investments and profits from Thrive Agric.
Our correspondent gathered that the company’s troubles started a long time ago as records show that it has been owing investors as far back as April.
A retired civil servant in Lagos, Mr. Toyosi Oladunjoye, said he invested over N3million of his pension in the scheme in October 2019, hoping to make a return of a little over N400,000 at the end of April.
“I thought I did everything right to protect myself. I only put in money when I learnt that Leadway Assurance is insuring all investments in the event of any loss.
“Since April, I have made several attempts to retrieve my money and interests to no avail. It has been one promise after another. More worrying is the fact that workers of the company have gone AWOL. Their site is even down.
“When I contacted Leadway Assurance, I was told that their insurance policy covers only assets on ground and not funds invested. I am begging the government to come to my aid. They should not allow my sweat to go in vain”, Pa. Oladunjoye begged.
When our correspondent checked on the website of the crowdfunding platform, he noted that the company specifically stated that its insurer, Leadway Assurance, will at least pay back investors capital if anything goes wrong.
In its reaction, the management of Thrive Agric blamed its inability to meet up with payment schedules on effects of the coronavirus pandemic. It added that the company’s insurance policy with Leadway Assurance does not cover the losses incurred due to activities before and after farming.
In an email message sent to many of its aggrieved customers obtained by BH, the company said it was not fully prepared for the impact of the COVID-19 pandemic. It promised to pay investors their due, but that repayment will be on a first-come-first-served basis.
“Thrive Agric primary revenue source is based on a successful harvest (inclusive of crops and poultry).
“When a planting season or harvest is lost, like we did this year, Thrive Agric can only hope to earn such lost revenues from subsequent harvests.
“In our case, we have previously communicated to subscribers that we would meet our obligations based on overdue payments from off-takers. Some of those payments have come in, but not nearly enough to meet our obligations to subscribers.
“We have communicated timelines for repayment to our subscribers of up to 24 months depending on the specifics of their subscription.
“We expect to payout before the committed due date. In the past, we have been aggressive in our expectations but not able to meet them. We do not want to continue to disappoint our customers so we have given a timeline that we can more confidently keep”, the company explained.
BH reliably gathered that many Nigerians are experiencing the same reception from other crowdfunding platforms. A business woman with a popular firm who did not want her identity and that of the firm she invested in for fear of losing her investments, narrated her experience with our correspondent.
“I invested $5,000 in an agric crowdfunding company in March 2020 and am expecting to make a profit of $1,000 by the end of the first planting season in June.
“When I approached the company at the end of the month (June), they told me that they were affected by coronavirus pandemic and the subsequent restrictions and lockdown. I was told to wait till the end of another planting season in October.
“October has passed and November has almost ended, yet I have not been able to recoup my initial investment, not to talk of profit”, she lamented.
When prompted by our correspondent to name the affected company, she declined, arguing that naming it would jeopardize her investments.
“I am learned and know the implication of going public with the name of the firm. Most people dont know that the company is in trouble and I will prefer that it stays that way.
“What will happen if I go public with the name is that there will be a run on the company by desperate investors in a bid to retrieve their money. With that, they will have more people to share the meager resources available to them to.
“Don’t let me add fuel to the fire. They promised to pay me by December 2020. Let us wait until then”, she insisted.
Findings revealed that several factors are threatening the continued sustainably of the thriving industry, particularly those that promised higher than normal return on investment rates to investors.
They include the lockdown and restrictions necessitated by Covid19 pandemic which disrupted farming activities. Due to the lockdown, many farm products were trapped and perished in the farms, with farmers who took loans unable to pay back.
Another challenge, which is a major one, is regulatory risk, as Nigerian business laws do not accommodate crowdfunding.
Despite the Securities and Exchange Commission (SEC) banning the platforms from engaging in equity crowdfunding, some recalcitrant firms have continued in the act without hindrances, with SEC only making frequent statements threatening to regulate them.
Owing to increased scrutiny on their activities, interest or debt crowdfunding has remained the prevalent model in Nigeria.
Due to the absence of regulatory structures to supervise their activities, many agric crowdfunding firms have become reckless, daily selling products with a promise of unrealistic higher returns than the rates they can earn.
Our correspondent noticed that some companies now offer as much as 50% – 70% return on investments.
Worried by the growing trend, the Institute for International Finance (IIF) warned that agriculture crowdfunding platforms that sell products promising higher returns than the rates the companies can earn on risk-free investments may be pushing risky bets that are increasingly skirting the lines of Ponzi schemes amid a hunt for yield by investors and weak regulations.
The Head of Department, Registration Exchanges and Market Infrastructure Department, SEC, Emomotimi Agama, recently disclosed that agric crowdfunding platforms that collect money from the public to fund their operations and projects are engaging in capital market activities.
He warned that Nigerians are at risk of losing their investments, while insisting that crowdfunding platforms must be regulated to protect investors.
Meanwhile, the Securities and Exchange Commission, in a bid to protect investors in such platforms, recently released a draft set of rules to regulate the industry and deepen the domestic crowdfunding capital market.
In the new law, the SEC also proposes the establishment of government-regulated crowdfunding portals that can only be registered and operated by crowdfunding entities registered with the commission as an exchange, dealer, broker, broker/dealer or alternative trading facility; SMEs/MSMEs seeking to raise funds can only make offers on a crowdfunding on the SEC-approved portal and a prescribed maximum amount of NGN100mn for medium-sized enterprises, N70mn for small enterprises and NGN50mn for micro enterprises.
Also, an investor can only invest 10% of his or her annual income on all crowdfunding platforms in a year. However, high-net-worth and qualified institutional investors have no investment limit; an investor has the right to withdraw their investment within seven days of becoming aware of any material adverse change affecting the issuer and investors must be refunded debited sums within 48 hours after cancellation or withdrawal.