Md. Mizanur Rahman ACS: In any countries of the world, fund crisis is considered one of the biggest problems of any business. Once upon a time, banking sector was considered the only reliable source for supplying fund to the entrepreneurs. Generally, most of the banks feel comfort to render financial services to their existing customers. Because of the fund crisis many potential entrepreneurs can not come into the business and if come, then they can not survive in the competitive market. But, today in the age of information and technology raising fund for any potential project is not a matter. Especially, if the project idea be creative and unique then fund can be raised from any part of the world. Basically, the process of raising fund using the information and technology from any part of the world is popularly known as Crowdfunding. Simply, it is a way to raise fund for an individual or organization by collecting donations through family, friends, strangers, businesses and more. By using this platform the entrepreneurs, especially the new entrepreneurs can collect necessary fund for their businesses. It allows the entrepreneurs to produce without any risk and even with a small amount of capital. But, it does not mean that this platform is only used to raise fund for the business purposes, rather it can be used for various purposes; such as fund for Accidental or Personal problem, Street Children, Special Children, Minority community, Innovative idea, Education, Environment, Food, Health, Sports, Technology, Empowerment of women etc.

The Crowdfunding concept has been around for centuries. But the first successful Crowdfunding campaign was in 1997 when a British rock band arranged a reunion tour by the donations of their supporters. Within the last 23 years, it has become a multibillion dollar industry. Gradually this concept developed in the US’s market. In Chinese market, it was started in 2013. China has become the world’s largest player surpassing the United States since 2018. But, this concept got huge popularity during the 2008’s global economic recession, when most of the European countries including the United States were hit by that economic recession and became financially weak. The banks of those countries had passed a tough time and became unable to do anything for their customers. Both the new and existing entrepreneurs became victim of that crisis. Even the Venture capital firms also forced to reduce their operations. Actually, since then this new concept has been gaining popularity among the young entrepreneurs. And every year, a huge amount of funds are being raised through this channel. According to Wikipedia, in 2009 US $530 million was collected through this platform where in 2015 it became US $34 billion. “The Crowdfunding Market Research” has predicted that by 2018-2022 it will be US$89.72 billion. That report has also predicted that the market will grow at a CAGR (Compounded Annual Growth Rate) of over 17% during the forecasted period. In 2013, World Bank published a report named “Crowdfunding’s potential for the developing World” where they showed that by 2025, the market exposure of Crowdfunding in the developing countries will be US$100 billion.

There are several types of Crowdfunding. Butdepending on the fund raising process it can be classified into 4 types; Donation-based Crowdfunding, Reward-based Crowdfunding, Equity-based Crowdfunding & Interst-based Crowdfunding. Basically, the birth of the Crowdfunding concept has come through the donation-based Crowdfunding model, from where a donor does not long for any privilege against his donations. Without any monetary interest he just donates only for the social welfare. A bangla film named “Akjon Kabir Mrittu” was produced by this model, where the producer of that film was the general people. It means that all the financial supports were collected from the general people. In that film everyone was fund raiser. While, in rewarding model an investor expects some reward or remuneration for his investment. Equity-based model makes bridge between the investors and the entrepreneurs where an entrepreneur presents his business project in details. Considering the ins and outs of the project, the investors can take decision about the investment. In this model there is no donor, no fund raiser. All are considered as an investor. At the end of the year, the profit that will be earned from that project will be distributed among the investors in accordance to their ratio. Interest-based Crowndfunding is where an investor gets a certain interest on a fixed rate through their financing. Generally an established company raises fund through this model.

The three dominating countries of the world’s Crowdfunding market are China, USA and UK. China represents the highest volume in the world with a market share of an astonishing 86% where USA has 10.3% and UK has 1.88% market share. Recently Australia, Germany, Canada, France, Netherland, Japan, South Korea, Indonesia, Malaysia, Singapore, Philippines and India have started it as their pilot project. In Australia “Crowd Sourced Funding Act-2017” has been passed. In accordance to this law, an unlisted company can raise fund up to US$5 million from the investor each year. New Zealand defensively established the legal frameworks regarding the equity-based Crowdfunding in 2013. In New Zealand the companies can raise fund up to US$2 million from the investor in each year. In United Kingdom, non-accredited investors can invest in startups as long as they agree not to spend more than 10% of their net assets in a year. In Italy, reward based Crowdfunding websites have been active since 2011. In our country it has been started from the last few years. “Venture Capital” launched a Crowdfunding platform named “Oporajoy” in 2017, which was basically a donation-based Crowdfunding platform. They launched another site called “FundSME.com.bd” which mainly helps the entrepreneur’s to raise fund to accelerate their businesses. It is basically an equity-based Crwodfunding platform. “GoFundBD” is another donation-based Crowdfunding platform, form where people can raise fund especially for the charitable causes.

The success of a Crowdfunding project campaign is highly dependent on the fund raising amount. When the amount of funds collected from the campaign successfully exceeds the target amount of funds, then the campaign can be declared as successful. But all time the full required fund may not be raised through this channel. In 2014, “Indiegogo” tried to collect some fund from the investors through this channel, but they could collect only 9% of their requirement. It is one of its major limitations. If the required fund may not be collected, then the collected fund can be returned to the investors or whatever collected can be used for the project. Usually, the Crowdfunding websites take a certain portion of the donations as a processing fee. Facebook charges 2.6% processing fee, plus 30 cents of each individual donation, for Crowdfunding by individuals. Most of the sites take 1%-5% of the total donation as processing fee. But, there are some sites that charge 0% processing fee.  But if the donation was made through the traditional charitable organizations, then they would not charge any processing fee. Moreover, the return of the Crowdfunding is not guaranteed. The share value does not increase. Even there is no assurance to get the dividend. Moreover, being the shares unlisted in the capital market, it is quite difficult to sell the shares. Again, many new entrepreneurs do loss in the first few years; as a result the investors may lose their full investment. That’s why before investing in an equity-based Crowdfunding project; it is advised by the economic experts to check the financial statement of that respective organization. Moreover in case of Equity and Interest-based Crowdfunding model, the entrepreneurs must maintain some legal formalities. Without maintaining these legal formalities none can run these models. They must have the approval from their Central bank, Stock Exchange, Securities and Exchange Commission, Registered of Joint Stock Companies and other regulatory bodies. On the other hand, the investor who will invest must have to submit income tax return papers.

Today, the whole world is going through an uncertainty. Economists think that the impact of Covid-19 will be much more acute than the 2008’s global economic recession. Almost all the countries of the world have already been affected by this crisis. It has already destroyed the economy of these countries. The United Nations has estimated that Covid-19 could slowdown the global economy at least 2% from the last year. Since the outbreak of Covid-19, in every country’s banking sector has been passing a very bad time. As a result, now it is not possible to depend on the banking sector to meet the fund crisis demand. As an alternative means of raising fund “Crowdfunding” should be made more popular throughout the world. There is no doubt this new economic concept can play a significant role to recover the loss of the global economic recession caused by Covid-19. In a developing country like Bangladesh, where the talented young entrepreneurs can not implement their creative projects just because of shortage of fund, there, by eradicating the concern of collecting fund; Cowdfunding can play a significant role. There is no doubt that our government is working relentlessly in the national development by using the talents of the youth. But the government has limitations also. So, instead of just depending on the government or the financial institutions, we also need to look for alternative sources of funding on our own initiative. But, in our country still many people do not know about this new business platform. And it is not easy to get popularity of this new platform overnight. It must take time to make it popular among the people. If this platform can be made popular in our country, then a lot of potential projects will be implemented. Many talented dreams will be fulfilled. Many talented young boys will be encouraged to think in a new way. But in many countries of the world this new concept has not yet got the legal recognition. Considering its great significance, necessary laws and relevant infrastructure should be developed as early as possible.

About the Author:

Md. Mizanur Rahman ACS is a Banker, working at Pubali Bank Limited. He is also an Associate Member of the Institute of Chartered Secretaries of Bangladesh (ICSB). He can be reached to this email: bds.mizan@gmail.com