According to SEBI, crowdfunding is defined as solicitation of funds (small amount) from multiple investors through a web-based platform or social networking site for a specific project, business venture, or social cause.
SEBI is currently in the process of establishing regulations on crowdfunding. Once this picks up, it will be a boon to the SME/early-stage startups to raise funds from small-time investors.
Types of crowdfunding:
The first two shall be social funding and last two shall be financial return funding.
Social media is going to play a pivotal role in this crowdfunding. It is going to be a new stream of revenue for them by acting as a facilitator between the investor/lender and issuer/borrower. With the recent initiatives by the Indian government through Digital India programme, a substantial amount of Indian population will be brought into the world of Internet.
Already many crowdfunding platforms such as Faircent, Lendbox, i-Lend have started to emerge in India primarily in the area of peer-to-peer lending. However, it is yet to pick up pace in India as these platforms are awaiting for regulations from government agencies such as RBI, SEBI, Income tax, etc.
It is good to view crowdfunding from a positive angle, however, the crowdfunding platform, if not properly regulated, shall lead to a market for illegal/unlawful activities. This will force government agencies, such as SEBI, RBI, Income tax, etc., to impose a lot restrictions/checks to bring in accountability.
Benefits of crowdfunding:
Risks of crowdfunding:
SEBI is forced to come up with a rigid as well as issuer-friendly regulations in order to source funds from the open market.
Other government agencies such as RBI, income tax, etc., are studying about crowdfunding and shall soon come up with their own set of regulations.
Crowdfunding is a break-through for the SME/early-stage startups, especially the bootstrapped ones, to source funds from the market. However, practical and legal issues involved in opening up a new market, shall force the government agencies to come up with a lot of regulations to be complied by the issuer/borrower, which shall directly lead to SMEs’/early-stage startups backing out from the idea of crowdsourcing.
Making the crowdsourcing a reality, is a long road ahead.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)