BASSSETERRE, St. Kitts -- ACCESS TO capital is a hallmark of real economic opportunity. Progressive nations such as ours, provide access to capital to their citizenry, usually after securing funds from donor nations or groups such as the World Monitory Fund, friends of nation, and regional development banks — which are in turn, provided to citizens through various programs. Funds are also derived through core economic drivers such as Tourism and Citizenship By Investment.
How do these funds get dispersed?
Usually, Cabinet, and the Minister of Finance, use data and recommendations from Federation economists as to how funds should best be disbursed to accomplish the greatest economic good.
The vehicle used to disperse funds, are usually statutory in nature, such as the Development Bank, National Bank, and SIDF. The programs used to stimulate the economy have names such as SAEF, SEED, and Fresh Start.
Millions of dollars annually are infused into our economy, with various levels of performance achieved.
While this is an over simplified explanation, business owners and startups continue to struggle in their need and pursuit of capital. Institutional lenders have their own underwriting or risk assessment protocols that often filter out and deprive many worthy businesses access to vital funding.
Over the past ten years, a movement has gained critical mass, and is now available to progressive nations and economies — where inventors, startups, and entrepreneurs secure funding. This movement has finally found groundswell support globally.
What is this new movement? Peer-to-peer financing, or (P2P). Billions of dollars are now being managed and moved through P2P platforms, bypassing banks and government programs entirely. The IMF recently produced a comprehensive and detailed analysis of how P2P will be ‘THE’ driving force that developing nations use to develop their economies.
If you have heard of LendingCircle, KickStarter, and Prosper, then you have an idea of how P2P works. If you have an idea or business concept you believe in, you can create a story (presentation) and business plan, that is posted for a national or global audience of investors looking for interesting ventures, who then invest micro-amounts in your venture. As an example, let’s say you desire to develop ZIP Tours, Inc., a zip-line business in Nevis that requires $145,000USD in startup capital. Through P2P, hundreds of investors can contribute specified incremental amounts, such as $25, $100, or $1,000USD, until you reach $145,000 in commitments. Hundreds of thousands of entrepreneurs have used P2P to launch and grow their dreams.
Technology platforms and favourable regulatory support make this possible. The benefit to investors, such as those on prosper.com is an ROI (return on investment) of 10%+. When it comes to defaults and risk? Prosper reports a 5.1% default rate, which is in line with institutional risk. Leveraging P2P, the people win.
Banks and financial institutions, realising that people are now getting the funding they want and need, effectively bypassing ‘the bank’, have had mixed reactions to this viable alternative before ‘the people’. In the UK and USA, many banks, realising that fighting P2P is a losing proposition, have developed P2P arms (branches) within their organisations.
St. Kitts and Nevis can create a first mover advantage, as a National Brand position, that has the potential to replace and exceed prior financial services revenue of the past, that had provided privacy and protection. As a nation looking to boost our GDP, open to new, sustainable growth, we need look no further than P2P.
Will there be regulatory and social concerns by activating P2P as a national brand position? Yes, there exist implications that would most likely need approval within the OECS and/or as P2P would be supported within SKN. As with any forward opportunity, the political will and recognition of the value P2P represents to our economy cannot be in dispute.
For any individual that has sought, and been denied funding from an institutional bank or government program, P2P represents a worthy alternative that can elevate our national economy.