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There was a time when anybody needing monetary help, whether for starting a business or for fulfilling a personal need, one had to depend on moneylenders. Some could rely on well-meaning friends and relatives. In the absence of regulations, these sources of respite became more exploitative over time. Therefore, the need for regulated financial institutions like banks was felt. However, there are several cases where these institutions refuse to lend money.
What, then, are the options for a person in dire need of credit, but deemed unsuitable to receive it by an institution? Is there any alternative that ensures that the person in need is not exploited? Can you think of a morally, ethically and legally acceptable means of procuring the required funds? Over the last decade and a half, access to technology has given a makeover to an age-old method of raising funds. We know it today as crowdfunding.
WHY DO I CALL IT A GIVING ECONOMY?
At its very core, crowdfunding is much more than a simple monetary transaction. It involves a person gathering a relatively high amount he requires from multiple sources instead of one. The underlying difference here is that every contributor either gets something out of the ‘deal’ or is genuinely looking to help.
Today, this method of fundraising is being used for setting up businesses, running nonprofits and everything between these two spectrums. People have used crowdfunding platforms for every occasion in their personal lives. From weddings, baby showers, vacations, medical emergencies and even funerals. Small entrepreneurs and artists have used it to fund their pet projects.
There are many experts who believe crowdfunding will become more of a mainstay in fundraising than an alternative to being tried in the absence of conventional sources. And, all this has worked because there are enough number of ‘givers’. What else would one call an economy fuelled by givers other than a giving economy?
IS CROWDFUNDING REALLY SUCH A BIG DEAL?
On first look at the platforms and the concept, it may not appear to be a revolutionary idea. After all, crowdfunding has been in existence for thousands of years. Technology has only changed its form and perhaps made it more accessible.
Let’s take a look at some numbers, though. Between 2012 and 2015, the global volume of the crowdfunding sector rose from $2.7 billion to $34.4 billion, a fifteen-fold rise in just four years. In fact, there is some very optimistic projection of the sector, one which says it is expected to have a volume of $300 billion by 2030. No wonder then that the number of platforms providing this service has also increased from 700 in 2012 to more than 2000 today.
HOW IS THE MODERN DAY CROWDFUNDING DIFFERENT?
One definite game changer in making this possible has been technology. The chances of a campaign going viral, and gathering global acknowledgement are much higher on the internet.
Another prominent feature in this regard is the availability of several third-party platforms aka the crowdfunding websites. Most of them have in-house experts and are happy to help their “customers”. One can, in fact, even outsource their campaign to agencies and experts who help with formulating marketing strategies.
There are four types of crowdfunding, dependent on what the contributors get out of it. They are lending, donation based, rewards based and equity.
THE PROMINENT PLAYERS
The number of active crowdfunding platforms may seem like a lot. However, each of them serves a definite niche or region.
Some platforms that have created a buzz in the crowdfunding space include Kickstarter, IndieGoGo. GoFundMe, JustGiving, YouCaring and Crowdera. Together, these platforms have totally transformed the way giving happens in the world. While some of them support artists and entrepreneurs in their projects, many of them provide their services to individuals in dire circumstances and even to NGOs.
THE INDIAN SCENARIO
In India, the crowdfunding sector is marred by legal hurdles. Donation and rewards-based crowdfunding have a total legal sanction. There are proposed regulation structures for the other two.
Equity crowdfunding, in particular, is being lapped up by most countries. As is real estate crowdfunding. The ‘Make in India’ and ‘India Shining’ waves will sure benefit a lot if the relevant regulations are put together soon. This will provide startups and businesses to take advantage of the phenomenon of crowdfunding.
THE ROAD AHEAD
I expect that more niche sectors will make use of crowdfunding in tears to come. Just like an unexpected discovery of its use in realty, we are yet to stumble upon other such sectors.
Just like digital monetary transactions are gaining ground in India, digital currency is becoming popular in other countries. Blockchain-based crowdfunding has been a much talked about phenomenon. And, I expect to gather more steam globally in the next couple of years.
We sure are looking at a future where crowdfunding is no longer an alternative source of fundraising, but a mainstream one.