Stock markets in the Eastern Caribbean could be described as underdeveloped, however, the Organisation of Eastern Caribbean States (OECS) is receiving assistance from the Caribbean Development Bank (CDB) to generate more investment interest and exploit the true potential of small businesses.

The unique project being pursued by the Eastern Caribbean Securities Regulatory Commission (ECSRC) is seeking to create the framework in which crowdfunding can occur in a safe and regulated environment.

CDB, through its MSME Unit is supporting the project with USD $122,000 in funding.

Alousia Faisal is the Chief Executive Officer of ECSRC which is based in St Kitts and Nevis. The ECSRC is the securities regulator for the Eastern Caribbean Securities Exchange (ECSE), which provides the trading platform for equities in the eight member countries of Antigua and Barbuda, Anguilla, Dominica, Grenada, Montserrat, St Kitts and Nevis, St Lucia and St Vincent and the Grenadines.

Providing some background to the project, Faisal said just before the COVID-19 pandemic, the ECSRC had been examining ways to develop the market given the two-fold role of the agency which also includes a mandate in law to grow and develop the Eastern Caribbean securities market.

The top regional regulator added “We recognised that it was the smaller enterprises that were most hard-hit by the pandemic.  We at the ECSRC sought to find ways to promote and help those businesses to raise capital in a safe environment.” Crowdfunding has been a popular mode of sourcing funds online from a large group of people to support a new business venture, a worthy cause, or product launches. Viewed as a relatively successful capital source in developed markets, the ECSRC boss said it was seen as a viable option to bridge the financing gap of some MSMEs in the OECS.

“A proposal was presented to our Commissioners – our board - and they approved the draft rules. However, we did not have the resources to really take the project from our vision to where we needed it to be with implementation. We approached CDB to determine if they were willing to assist us in moving the project forward, raising the awareness and actually helping us to get to the stage where we could license or authorise a specific platform to operate in the jurisdiction,” the chief executive disclosed.

Faisal pointed out “We are not going to be engaging in the activity of crowdfunding because we are the regulator. What we are doing is creating a safe space for both entrepreneurs and investors where crowdfunding can take place. Our role really is to create that facilitative environment for the activity to happen safely for all the players involved.”

The securities regulator explained MSMEs offering themselves for crowdfunding will not be required to list on the regional exchange but will have to operate within the rules established for management of the platform.

“For the investors, we have created rules that identify how much they can invest given the associated risk profile of MSMEs. We have built-in protections for them. There are different tiers of investors. We have the ‘qualified investor’ who understands the risks and who is able to assess a crowdfunding campaign and can determine whether the risk is something they are prepared to take,” she noted.

Other categories of investors include the ordinary man in the street who may have funds and wants to invest but his knowledge base about investing is limited. There is a “safe space” for that type of investor the ECSRC top executive pointed out. The current financial services environment in the region requires significant attention to due diligence in the prevention of money laundering and financing of terrorism.

In relation to this, Faisal emphasised how this is managed, noting that strong anti-money laundering protocols are built into the crowd funding rules for investors and those for the entity approved to operate the online platform. Investors will be required to create accounts and supply the same information needed to establish a bank account including information on the source of funds.

Through the awareness and training component of the project, Faisal said interest was extremely high, with enquiries from the OECS diaspora. Regarding establishment of the crowdfunding platform, the CEO revealed that after expressions of interest from four companies, it was narrowed to two companies from The Bahamas and St Kitts and Nevis.

The St Kitts-based company has been chosen to host the crowdfunding platform and is making some adjustments to its facility which also enables peer-to-peer lending. An excited Faisal spoke about the authorisation and operation of the platform through a regulatory sandbox. “We view the crowdfunding project as an incubator; a preliminary stage that eventually leads to listing of companies on the exchange,” she stated.