June 28, 2017 Yes Institute

Catalyzing the Power of the Crowd for Social Impact

  1. Author: Ms. Preeti Sinha, Senior President – YES BANK, Global Convener- YES Global Institute

The realms of finance have evolved over the years to incorporate new instruments to catalyze private capital for development. One such instrument which has democratized access to capital by giving power to people is ‘Crowdfunding’.

The global crowdfunding industry in 2015 estimated fundraising at around $34 Billion with around $25 billion in P2P lending, $5.5B in Reward and Donation Crowdfunding and $2.5B in Equity Crowdfunding. Despite this extraordinary global performance, crowdfunding in India is still at a nascent stage. This has necessitated an ardent need by local ecosystem players to grasp this opportunity to ride this growth engine has and channelize private capital for social impact.

Firstly, crowdfunding enables individuals and communities to become the change makers and to catalyze capital for social good. In Delhi, two 17-year old girls were deeply disturbed to see the quality of the drinking water in a nearby slum. Thanks to a crowdfunding campaign and a tied-up with a corporate, they raised enough donations to provide water purifiers to 70 families. In Kerala, a drought-affected village needed a canal to improve the availability of water. Despite the contribution of every farmer, the funds to finance the infrastructure were still insufficient. A partnership with an NGO and a crowdfunding campaign allowed the village to raise the missing capital to fund the project.

Secondly, crowdfunding is a great tool to test the viability of a product and to bring creative social projects to life. This is especially true for social enterprises which are using design innovation to solve various societal problems. These social enterprise have a great story to narrate and share a connect with people to deliver success. Bakeys is the maker of the world’s first edible cutlery made primarily from sorghum. The company raised more than $300,000 from more than 10,000 supporters in their campaign in India and in the U.S.

Thirdly, equity crowdfunding can contribute to the mainstreaming of impact investing. This particular form of crowdfunding allows individuals to be part owner of the social enterprise and contribute directly towards the cause at the same time acquire securities of a company. This enables individuals to be an angle investor and be associated with organization which they truly believe in.

Initially designed around a donation-reward model, the crowdfunding industry is opening up to more complex forms of capital such as debt and equity. For many reasons, crowdfunding shows an enormous potential to become a major catalyzer of private capital for social impact with various key stakeholder playing a pivotal role in it.

Platforms and service providers need to engage more organization and social enterprise working to deliver social impact. It is important to involve marginalised groups, provide capacity-building training and hone the entrepreneurial potential of individuals and organisations to use the platforms. India is increasingly becoming a startup nation and crowdfunding platforms have the potential to bring a stratospheric change in which social enterprises would like to raise capital and make an impact.

Communities, NGOs and social entrepreneurs need to understand the benefits of running a crowdfunding campaign and the ability to leverage the same for funding. It is important to learn from successes and failures of others.

Investors education need to be undertaken to sensitize them about the impact and the power domiciled with them to bring about change. This is particularly the case when we look at the corporate world and the opportunity they have to back crowdfunding projects as part of their CSR initiatives.

Last but not least the role of regulatory authorities. In India, equity crowdfunding is an unregulated business. This limits the ability of enterprises to raise funds and the investors ‘appetite for this class of capital. Policymakers need to build a legal framework to allow equity crowdfunding to act under a regulated umbrella. Global best practices can facilitate the work of policy makers. For example, the US has recently adopted a legal framework to equity crowdfunding. During the last year, this regulation has made it possible for 79 campaigns to raise $ 17.9 million.

Since historical times in India temples and worship places were built using public donations. The country needs to leverage this well-rooted crowdfunding culture as a transformative tool for catalyzing private capital for social good.  Building an eco system for social impact by leveraging Design & Innovations-led Creative Entrepreneurship (D.I.C.E.) would pave way for a new and brighter India by reaffirming the ethos of equitable and sustainable development.