Crowdfunding: Finance for the Developing World

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SEATTLE — In 2013, the World Bank reported on the great potential crowdfunding has as a method of finance for the developing world. At its core, crowdfunding is an alternative method for companies and organizations to raise capital from a large group of individuals, the crowd, either as a donation, or in return for some tangible reward or return on investment.

Having seen rapid growth in usage across the developed world, similar growth has been experienced in developing nations in recent years, with numerous successful projects having been funded and implemented successfully.

According to the 2013 report, there were several notable aspects to crowdfunding in the developing world. It noted a large amount of entrepreneurial talent, which often was underutilized due to the attitudes towards risk and finance across these regions, hindering potential economic growth and development. This being the case, crowdfunding was suggested as a different method of financing ventures, not only for start-ups but also small to medium-sized businesses seeking expansion.

Potential problems were noted as well, such as the possibility of campaigns failing to deliver on promises, as well as concerns over fraudulent activity. Ultimately, however, it was suggested that the notion of crowdfunding providing finance for the developing the world was one of promise.

In the years since then, this appears to have been a correct assertion. In 2015, projects requiring finance for the developing world, excluding China, raised a total of $430 million, with 2016 estimates suggesting growth of 53 percent to $660 million. Unlike campaigns in the developed world, where focus is placed more on a tangible return, most funding rounds were either based on a donation or lending model through platforms such as Kiva, where no interest is charged against loans. As was perhaps to be expected, countries with greater internet penetration were most active, such as India and the Philippines, with these countries alone generating around $55 million in 2015.

Campaigns focused on a wide range of areas. For instance, with cellular phones becoming more prevalent in South Africa, a startup called hearX Group achieved its fundraising target with more than a month to spare. The company was raising capital for a smartphone device that allowed hearing testing, in an effort to prevent ailments which can often be cured easily when identified early. In Indonesia, the ‘Bring Water for Life’ campaign sponsored by the UNDP gained the capital required to build solar-powered water pumps in remote villages, helping bring sanitation and clean water to the country.

In the vast majority of cases, concerns over fraudulent activity were found to be unnecessary, as any attempts of this nature were generally thwarted quickly and removed from crowdfunding platforms. While the risk of failed projects remained, this is something that happens in crowdfunded projects in the developed world anyway and is therefore unlikely to be unavoidable going forward.

Progress is obviously being made and crowdfunding is being viewed as a realistic alternative when seeking to provide finance for the developing world. If these nations are to build upon the success experienced already, support from governments and NGOs focusing on development may allow crowdfunding to be a key driver of growth at a global level.

Gavin Callander
Photo: Flickr

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About Author

Gavin Callander

Gavin lives in Seattle, WA. He has an Honours degree in Business with Financial Management. His academic interests are broad, ranging from economics and finance to politics, sociology and psychology. He enjoys understanding the factors that affect our everyday lives. Originally Gavin wanted to be a music teacher.

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