How crowdfunding can become a major source of alternative funding in Bangladesh

Crowdfunding is a process of raising funds from different parts of the world using information and technology. Individuals or organisations can raise funds from platforms that host both funders looking to invest in interesting ideas or just causes, as well people looking for funding to pursue their passions, implement different business ideas and other things.

By using such platforms, entrepreneurs, especially new entrepreneurs, can collect funds for their businesses. It is also known as cyber begging. In such platforms, an entrepreneur initially has to write details of his project and post it, stating how much money he or she needs for the project. Community members and well-wishers can then contribute to the project based on their ability and interest. 

These platforms are not just used to collect funds for businesses, rather it can be used for various purposes - such as funds for mitigating personal problems, funds for street children, children with special needs, the minority community, innovative ideas, education, environment, food, health, sports, technology, women empowerment etc. 

The first successful crowdfunding campaign was initiated in 1997. But this concept got huge popularity during the 2008's global economic recession when most of the European countries, as well as the United States, were hit by that economic recession and became financially weak. The financial institutions of those countries passed through a tough time and were unable to do anything for their customers. Both new and existing entrepreneurs became a victim of that crisis. Even the venture capital fund firms of those countries were forced to reduce their operations. At the time, crowdfunding platforms emerged as a blessing. Since then, this concept has been gaining popularity among entrepreneurs all around the world. 

Every year, a huge amount of funds is raised through this channel. In 2013, the World Bank published a report named "Crowdfunding's potential for the developing World" where they showed that by 2025, the market potential of crowdfunding in the developing countries was up to $96 billion per year. 

"The Crowdfunding Market Research" predicted that by 2018-2022 it will be $89.72 billion. This report has also predicted that the market will grow at a CAGR (Compounded Annual Growth Rate) of over 17 percent during the forecasted period. 

The three countries dominating the world's crowdfunding market are China, USA, and UK. China represents the highest volume in the world with 86 percent market share, where the USA has 10.3 percent and the UK has 1.88 percent market share. Recently Australia, Germany, Canada, France, Netherland, Japan, South Korea, Indonesia, Malaysia, Singapore, Philippines, and India have started it as a pilot project. 

In Australia "Crowd-Sourced Funding Act-2017" has been passed. This act has given recognition to this new platform. According to this law, an unlisted company can raise funds up to US$5 million from investors each year. In 2013, New Zealand developed legal frameworks regarding equity-based crowdfunding. 

In New Zealand, the companies can raise funds up to US$2 million from the investor each year. In the United Kingdom, non-accredited investors can invest in startups as long as they agree not to spend more than 10 percent of their net assets in a year. In Italy, reward-based crowdfunding websites have been active since 2011. 

The success of a crowdfunding project campaign is highly dependent on the amount raised. When the amount of funds collected from the campaign successfully exceeds the target, then the campaign can be declared successful. 

Kickstarter is a well-known crowdfunding platform in the United States. So far, they have raised $220 million or Tk1,760 crore for their 61,000 projects.  

Many people cannot always raise the full amount of money they need from these platforms. In 2014, Indiegogo tried to collect some funds from investors through this channel, but they could manage only nine percent of their requirements. If the required fund is not raised, then the collected fund can be returned to investors, or whatever has been collected can be used for the project. 

Crowdfunding platforms need to have some legal approval from the Central Bank, Stock Exchanges, Securities & Exchange Commission, Registrar of Joint Stock Companies, and other regulatory bodies as well. But in many countries of the world, this concept has not yet got legal recognition. 

In Bangladesh, crowdfunding has not yet started in full swing. From our country's perspective, this platform has huge potential. If all goes well, it will become a major source of raising funds in the country soon. 

In our country, students in higher education get very little budget allotment to do research. Many people want to open a school in their own village. Again, many people want to work with disadvantaged children. Crowdfunding platforms can play a significant role in implementing these noble objectives. Currently, some projects are running experimentally. A Bangla film named "Akjon Kabir Mrittu" was produced under this model, where the producer of that film got funded by regular people. 

In 2017, "Venture Fund" launched a crowdfunding platform named "Oporajoy", which was basically a donation-based crowdfunding platform. They launched another site called "FundSME.com.bd" which mainly helps entrepreneurs to raise funds to accelerate their businesses. "GoFundBD" is another donation-based crowdfunding platform, from where people can raise funds, especially for charitable causes.

Today, the whole world is going through uncertainty. In a developing country like Bangladesh, talented young entrepreneurs cannot implement their creative projects just because of the scarcity of funds. 

Our government is working relentlessly to change the fate of the people of the country. But the government has some limitations. Even, currently, banking or financial institutions are also not doing well because of the Covid-19 pandemic. 

So, instead of depending on the government or the financial institutions, young entrepreneurs should look for an alternative source of funding. It is, therefore, high time to take crowdfunding forward. To make such platforms successful, people need not sacrifice too much. It just requires changing the mindset of the people. 

Md. Mizanur Rahman ACS is an Associate Member of the Institute of Chartered Secretaries of Bangladesh (ICSB). He can be reached at this email: [email protected]

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.