Post 2 of 4 – Reimagining the Capital Ecosystem of the OECS
Author: Tony Regisford
Reading time: 8 minutes
This post is about the missing middle: growth‑stage small enterprises.
Think of a business with 10 to 49 employees. It has revenue, a track record, a good customer base, experienced staff, and a solid product. The owner is ambitious.
She needs short-term working capital to fill some larger orders, and she also has expansion plans – new equipment, a bigger space. In all, she needs EC$300,000. That is more than she can put together on her own.
She is skeptical about trying a commercial bank. Collateral requirements. High interest rate. She suspects that the repayment period will be too short for her business cycle.
So she does what many other businesses in that position do. She stalls and remains small.
There is good news. In 2023, the Eastern Caribbean Securities Regulatory Commission (ECSRC) approved the Securities (Crowdfunding) Rules and opened a Regulatory Sandbox. Two platforms are now in testing.
The question now is, how do we make what the ECSRC has done work for our SMEs.
What Equity Crowdfunding Can Do
Equity crowdfunding is a legitimate capital market instrument. It is one of the tools that can help growth-stage companies to move to the next level of growth. It suits businesses with a compelling narrative and a product the public likes. Not every SME in the OECS fits that profile, but enough of them do. For those that do not fit the crowdfunding profile, I will explore blended solutions in the next post.
How Crowdfunding Differs from a Bank Loan
An investor can participate with a modest amount, typically far less than that required for private equity or venture capital. That opens the door to regional and diaspora investors. The regulatory requirements are lighter because the Crowdfunding Rules 2023 were designed for MSMEs. A successful crowdfunding round gets a business used to being transparent, accountable, and investor‑ready. This is the same discipline a future ECSE listing would demand.
Typical Roadblocks
These are the typical roadblocks I have been advised about when operationalising a crowdfunding platform:
Investor onboarding is one. Know Your Customer (KYC) and Anti‑Money Laundering (AML) complexity, remote verification, and trust all create barriers – especially for diaspora investors.
MSME readiness is another challenge. Many businesses lack audited financials, strong business plans, or sound governance.
Legal friction can slow things down too: Legal Entity Identifier (LEI) requirements for project owners, Key Investment Information Sheet (KIIS) documentation rules, and investor caps all add layers of complexity.
The absence of a secondary market also reduces willingness to invest. Early investors have no way to exit.
Passporting is another hurdle. Harmonised laws exist, but operational mutual recognition across eight territories takes time.
Platform capitalisation remains a concern. Under‑funded platforms fail.
The experts that I have spoken to believe that these are solvable problems, but they require coordinated action between regulators, platform developers, and the private sector.
The ArawakX Cautionary Tale
Worthy of mention is the failure of the Bahamas’ first crowdfunding platform. I did a bit of research into the “why” and this is what I found:
Insolvency and Financial Mismanagement
The Securities Commission of The Bahamas found that ArawakX was insolvent to the tune of $2.4 million. There was a pattern of commingling client and company monies, suggesting that client funds were used to finance the platform’s operations and pay staff salaries – a fundamental breach of fiduciary duty. The platform also failed to settle debts, including a $28,000 invoice from its portal provider, CrowdEngine, which eventually cut off its services due to non‑payment.
Regulatory Breaches and Legal Consequences
The company was accused of governance irregularities, regulatory breaches, and possible criminal infractions. The Chief Justice noted that some breaches warrant criminal penalties and found there was more than sufficient evidence to justify the appointment of a provisional liquidator. The platform and its parent company also carried out an unauthorised public offering of their own shares, which is a criminal offence under the Securities Industry Act, the legislation that governs securities markets in the Bahamas.
Governance Failures and Misconduct
The platform’s principals were accused of failing to co‑operate with the liquidators and of setting up a similar, unregulated operation in the United States. Several whistleblowers, including a former Securities Commission executive director, raised concerns about how the company was being run, including excessive spending and a lack of proper controls.
The Human Cost – Investor Losses
Nearly 900 Bahamians lost their entire investment in a Red Lobster franchise crowdfunding raise, totalling $90,384. Over 100 investors who directly invested in ArawakX itself are also facing a total loss. The company now insolvent and $2 million in claims remain unpaid.
Important for Us – OECS
The ArawakX failure should be taken as a regional lesson.
A platform must be adequately funded from the start and not rely on future revenue to cover its current costs.
There must be strict separation of client funds from operational funds, proper financial controls, and transparent operations.
The Securities Commission of The Bahamas took decisive action, which was ultimately supported by the courts.
The loss of hundreds of small investors can set back the entire concept of equity crowdfunding for years, eroding public trust. The region has seen this before. CLICO and BAICO left thousands of people with nothing. If crowdfunding fails the same way, it will be another reason for people like me to believe that the system is not for us.
The above addresses the fundamentals of adequate capitalisation, good governance, regulatory oversight, and investor protection.
ArawakX squandered an opportunity while potentially damaging the credibility of crowdfunding across the Caribbean.
The Cost of Delay
Even without a collapse, delaying an OECS crowdfunding platform carries a cost. I fully accept and understand why the I’s must be dotted and the T’s crossed. Still, we must not let caution become inertia. The longer an OECS crowdfunding platform takes to become operational, the longer these opportunities go abegging.
EC$1.27 billion in annual diaspora remittances will continue to flow into consumption only.
SMEs that need EC$50,000 to EC$1 million have nowhere to turn and will continue to stay small or die.
There will be no opportunity for a successful entrepreneur in Antigua to back a promising start‑up in Grenada through a properly regulated channel. His capital remains siloed.
Without a middle tier, the ECSE remains a market for government debt and a handful of banking stocks.
Let’s make this happen. The longer we wait, the more we lose!
Things for you to consider/answer as an SME owner or potential investor:
Would you consider raising equity through a crowdfunding platform and if not, what would hold you back?
If you wanted to invest in an OECS SME growth-company, would you do so using a crowdfunding platform?
Do the identified missed opportunities resonate with you?
Next Post: Beyond Commercial Banking – Blended Solutions for OECS Entrepreneurs.
In the next post I will explore blended solutions – guarantees, first‑loss provisions, patient capital vehicles – for businesses that are not ready for equity crowdfunding but have outgrown commercial bank lending.
But for now, I urge the private sector to show up. Let’s get the existing crowdfunding framework operational.
Leave a comment or contact me directly: tony@tonyregisford.com
Footnote: This is my personal commentary. The views expressed in this post are mine alone, as Tony Regisford, and do not represent any organisation I work for or am associated with, including the St. Vincent and the Grenadines Chamber of Industry and Commerce, the OECS Business Council, and the Caribbean Network of Chambers of Commerce (CARICHAM).
