Every one of us might have seen while browsing a news-based website or blog, images of children sleeping on a hospital bed appear or pop up in the middle, side or bottom, requesting for financial help for their medical treatment.
Normally people overlook it and continue their work. But it is a big project of financing popularly known as ‘crowd-funding’. Crowd-funding is the practice of funding a project or venture by raising money from a large number of people where each one contribute relatively small amount typically through internet. It is an unique way of utilizing the power of public in financing projects like, construction of a school, hospital, temple, financing a start up and running an orphanage, etc.
One lakh people across the globe joined hands to provide Rs17 crore for the medical treatment of a six-month old baby in Mumbai recently which was a success story of crowd-funding. Crowd-funding raised Rs 53 lakh for 23 homeless kids in Bengaluru, collected Rs14 lakh to rebuild a library destroyed by fire in Mysuru, provided Rs16 lakh for the construction of small bridge in a Maharastra village. Recently, a candidate from Tamil Nadu used crowd-funding to finance his electioneering campaign. He appealed people to donate whatever they can to support his zero budget campaign.
The PM Cares Fund set up by the Prime Minister of India also runs on crowd-funding mechanism. The story of Sri Ram temple in Ayodhya is a splendid example of the power of the masses. An amount of Rs 2,100 crore was collected during the 44-day fund raising campaign from January 15 to February 27. Before the launch of the crowd-funding programme, the Trust had an estimate of Rs 1,100 crore for the construction of the temple, but the overwhelming response from the public garnered an additional Rs1,000 crore. Even after the completion of the campaign period, people directly sent funds to the Trust which reached over Rs 3,000 crore.
Popularly we can see four types of crowd-funding like donation or social lending crowd-funding, reward crowd-funding, peer to peer lending and equity crowd-funding. The first two are community funding without expectation of any return whereas the last two are crowd-funding with expectation of financial return. Donation based crowd-funding, also known as charity funding, usually supports philanthropic campaigns like meeting medical expenses, education expenses, constructions of hospitals, temples, etc. In reward crowd-funding, people contribute money for existing or future rewards like prizes or free products as consideration.
In peer to peer crowd-funding, also known as debt crowd-funding, people contribute money with the expectation of repayment. The online platform helps in connecting the lenders with the borrowers with a view to arrange unsecured loans and the interest rate is fixed by the platform. Equity crowdfunding, also known as crowd investing, offers equity shares for the contribution of the donors. It is similar to IPOs but the difference is the procedure and formalities to be observed are different.
Startups willing to collect initial capital advertise through a crowd-funding platform which acts as a link between the startup and its investors. There are no legal restrictions for the first two categories of crowd-funding but the other two come under the purview of RBI and SEBI.
How crowd-funding is made? The crowd-funding campaigns run online with the help of dedicated crowd-funding platforms. They charge a percentage of commission from the fund raised as their service charges for preparing the campaign, making arrangement for smooth collection and payment facilities for the donors and managing the website. Ketto, ImpactGuru, Fueladream, Faircent, Kickstarter, Wishberry, Fundable and Milaap are some of the popular crowd-funding platforms operating having many successful campaigns to their credit.
Many of these platforms successfully collected funds to help the Covid affected people or to fund the projects which enable the people to receive help in different ways. Youngsters received funds for starting a business; those whose businesses or professions collapsed during the pandemic received finance to restart their business or find an alternative way of livelihood and many more were provided with rehabilitation opportunities. Many non-profit organisations received funds to provide food and water to the needy.
Ketto supported several entrepreneurs and SMEs during the pandemic with its campaigns. ImpactGuru raised about Rs18 crore through its Covid related campaigns. It conducted campaigns to procure medical equipment, ventilators, sanitisers, face shields, masks, PPE kits, etc, for the frontline health workers. The Fueladream platform raised more than Rs10 crore during the pandemic which impacted about three lakh people. The platform helped 500 tribal farmers of Tamil Nadu in selling their organic turmeric powder for which they were struggling to find the buyers. Around 143 farmers of Maharashtra received coolers worth Rs 21.5lakh to preserve their produce fresh for a long time.
Crowd-funding emerged as a last resort for many for whom it is otherwise impossible to raise huge amount for their requirements like medical emergencies, restructuring of business, or launching a charity project like construction and managing orphanage, etc. Many crowd-funding platforms proved as Good Samaritans offering all help to the needy. They help in bringing people close and arrange the much needed funds to the needy from the donors. However, as everything is done online there is every possibility of cyber frauds like theft identity and leakage of data. Also success is not guaranteed every time. However, the benefits override the challenges.
(Dr Biswal is Head, Department of Commerce, Nowrangpur College, Nabarangpur, Mob:9437125286. firstname.lastname@example.org)