Balkishan Chandak | Founder Partner | SMART CFO Services
Crowdfunding is the new buzzword going around in the circle of fund raising with a market size of $50 million and its gaining traction. Crowdfunding is essentially the opposite of the mainstream approach to business finance. 15 digital crowdfunding platforms have come up since the year 2010 and 12,000 high-running campaigns were held in the last year. According to a 2018 report by market research portal Statista, the current transaction value in the crowdfunding segment in India amounts to $8 Mn in 2018 and is expected to touch $21.7 Mn by 2022.
India is not new to the concept of Crowdfunding. Since ages, Indians we have been donating ‘chanda’ for socio-cultural cause, such as building places of worship. Even now, many shelter homes, orphanages and health care centres receive huge donation or contributions for their day to day operation. This prevailing social and religious practice of contribution has now been named: Crowdfunding – enabled by Internet and aided by technology platforms.
Two reasons that have resulted in the growth of Crowdfunding in India: –
- High usage of internet, especially on mobile phones, and
- Influence of social media on its users
Currently there are 5 models of crowdfunding available in India: –
- Reward-based
- Debt-based
- Equity-based
- Litigation crowdfunding and lastly
- Donation-based crowdfunding (most used)
Since the last 5 years, everyone has been hearing the term ‘Crowdfunding’ and most also know about it. Now a bit more of discussion of the benefits and challenges faced in the Crowdfunding in India.
Benefits of Crowd funding in India
- Your ventures get attraction on social media.
- Venture finds investors and people ready to fund.
- Startups and small businesses can display their products or services to a larger number of people.
- Also, startups get general comments and feedbacks about the quality of their products/ services from a large number of people.
Challenges of Crowdfunding in India
- Crowdfunding platforms don’t help in making financial promises to the donors / contributors.
- Online raising of funds are not considered trustworthy
- The crowdfunding industry is not very popular with investors and thus there are very few platforms available.
- Crowdfunding platforms work on online bases which don’t help in inducing mass awareness and encouraging participation
Crowdfunding in India – Legal aspect
As of now there are no regulations for crowdfunding existing in India, but in 2014, SEBI had released a consultation paper which mentioned the need for regulation Equity crowdfunding is already banned in India, as the SEBI states out the high risk involved in digital selling of shares. Though reward-based crowdfunding and donor-based crowdfunding are not illegal.
The very renowned Crowdfunding platforms available in India are Milaap, Ketto, Wishberry, Impactguru, Catapoolt etc.
Crowd funding benefitting various Industries
Crowd funding in Healthcare Industry
India is a country which spends a lot on healthcare, approximately USD 100 billion. 60% of these spends is out of pocket expenses which are not covered by insurance companies. India is a developing country, but its public healthcare is still not in a proper shape, and the government spends only 1.15% of the GDP for basic necessities. And on the top, this support money is usually non-accessible to average people and can cause life-or-death situation in many medical cases.
This is where crowdfunding platforms have stepped in and gained importance. Through a simple click of a button, people are able to share their difficulties and challenges they faced during emergencies with they hope to raise funds through public contributions.
Personal loans from Banks for medical purpose (which are usually costly) now have become a headache becos of high interest rates. It is a difficult to pay back these loans in short period of time, thus constraining people to not take loans. On the other hand, crowdfunding programs are debt-free and interest-free leading to people choosing this option. Crowdfunding platforms work hand in hand with hospitals and help the patients to reach for quick help and also help the patients in verifying their medical records.
Crowd funding in Media and Entertainment Industry
Nowadays, independent filmmakers, music producers and artist all gain support by crowdfunding. These artists can even earn up to lakhs of money for their work. It also helps the industry in bringing up new directors and producers’ coveted projects. One of the main crowdfunding movement was in 2003 when Bollywood actor and director Mr. Rajat Kapoor had used crowdfunding for his movie Raghu Romeo. Although this way of making movies and entertainment pieces is still gaining momentum, the future potential is high in this industry. Some of these platforms make sure that the creators are recognized for their work, therefore allowing the content creator to earn money and also have the right audiences for their current and future work.
Crowdfunding for Education Loan
Students in India usually lack from financial support, and as a result put their careers on hold. Education crowdfunding is a solution for them. With so many loan defaults obtaining a educational loan has been becoming more and more competitive and difficult. Thus, crowdfunding is an option for the young Indians to pursue their choice of education.
Recently, the education-based NGOs in India have also seen the merit of using crowdfunding. They are realising the benefit of crowdfunding platforms, rather than offline door-to-door, charity galas and call centre operations which are not only time consuming but also expensive.
To conclude
Crowdfunding is fast growing in India and with the legal framework in place might just be the next big thing in the start-up sector. Crowdfunding is now rapidly being seen as a new and innovative way of fundraising for start-ups and even small business. India will also soon be bringing in the laws and regulations to support this movement, as these fundraisings will help in quick increase of start-ups in India.
As per September 2016 report, nearly 200 companies have raised approximately INR 35mn on various crowdfunding platforms over a span of 18 months. The average funding per campaign in the Crowdfunding segment will amount up to $145 in 2019. From a global comparison point of view, it is shown that the highest amount of fund raised was in China ($5,572mn in 2019).
About the Author
Currently, Balkishan Chandak (BK) is as Founder Partner of SMART CFO Services, providing shared CFO Services to SMEs and Start-ups. He has previously worked with various MNC’s and large Corporates as CFO. Expertise in develop Business Plans & Investor Pitch Deck for raising equity from VC and PE Investors. He has also been interviewed by the Magazine in Dec 18 for driving significant improvement to Client Financial Health through Quality level CFO Services.
