What is Crowdfunding?
Crowdfunding is the practice of funding a project or enterprise by collecting small amounts of money from numerous people, typically via online platforms. In the past two decades the market of crowdfunding has been growing quickly; crowdfunding has become a new way to finance, for example, start-up companies, projects in the visual arts and music, technological innovation, scientific research, and community projects.
Crowdfunding in India
A 2018 study by the Public Health Foundation of India found that healthcare expenses had pushed 55 million Indians into poverty; that is 4.5% of India’s population (the study was based on 2012 figures). Although crowdfunding for medical expenses accounts for only a sliver of healthcare expenditure today, it offers a tantalising possibility — that technology and the Internet could unlock advanced medical treatment for needy families without pushing them into poverty. After all, free government healthcare seems neither sufficient nor good enough. The National Family Health Survey-4 shows that 56% of India’s urban population and 49% of the rural population seek private healthcare.
In India, the situation is no different, with the majority of the population being underinsured due to insufficient public healthcare schemes and expensive private healthcare options. India’s total healthcare spending at 3.6% of GDP is far lower than that of other major economies globally. The healthcare spending of other comparable nations— like Germany (11.2%), France (11.2%) Japan (10.9%), Brazil (9.2%), South Africa (8.1%), Russia (5.3%), and China (5%)— is far higher in terms of GDP percentage than that of India. Of that 3.6%, government spending is only 1.15% of GDP, which means close to two-thirds of India’s expenditure on health is paid out of pocket by the people. India currently ranks 184th out of 191 countries in terms of percent-of-GDP spending on health.
Is Crowdfunding Legal in India
Crowdfunding refers to the utilization of funds from multiple investors for a predetermined aim through social-networking sites or web-based platforms. Such objectives or aims could be for a project or idea, (for instance, book publication, music or film) a public cause (for instance, community-based initiatives or causes) or for setting up a venture. Small financial contributions from the backers or supporters can fulfill the fund requirement of the ventures, which faces a shortage to access such funds.
There is no particular authority or department that regulates all aspects of crowdfunding. The slight regulation that does exist in this sector depends on the type of crowdfunding, for example debt crowdfunding or P2P lending comes under the purview of Reserve Bank of India, similarly, raising money by allotting ownership of the company and issue of securities comes under the jurisdiction of Security Exchange Board of India (SEBI). Reward-based or donation-based crowdfunding do not have specific regulators but attract laws such as Income Tax Act, 1961, the Foreign Contribution (Regulation) Act, 2010 (FCRA) and the Foreign Exchange Management Act, 1999 (FEMA).
Is Online Crowdfunding Safe In India?
Your crowd funding campaign features the very best in secure payment encryption technology. Not only are your donors’ online payments safe, your money is stored securely until you’re ready to request a withdrawal via electronic bank transfer. All major platforms are SSL certified, so all sensitive information with regards to your credit card/debit card/net banking details stays safe.
All Payments are secured via 128 bit encryption. SFA assures you that the information you provide is completely protected and that your donations are safe. Our secure-server software encrypts all your personal information like name, number, email and address. The encryption process takes the characters you enter and converts them into bits of code that are then securely transmitted over the internet to the payment gateways.
Through SFA, many people have the ability to make a lasting change in their own lives, or in their communities and beyond. As a SSL/PCI Level 1 compliant platform, SFA ensures your funds are always safe, no matter what. Our dedicated trust and safety team, beneficiary safety tools, and SFA Guarantee ensure that your donations, supporters, and beneficiary are all in good hands. Sign up today and begin making a difference.
What is the Future of Crowdfunding in India?
The sources of funding for Start-ups include private equity, angel investor and loan arrangements from financial institution. Any offering of public equity takes place only after the product or business becomes commercially viable. However, in Equity based Crowdfunding, funds may be solicited at an earlier stage, for instance, pilot development. Thus, giving the Company, access to funds beyond the traditional sources mentioned above.
It is essential to formulate balanced crowdfunding regulations in India that lower the cost of capital and increases liquidity while ensuring adequate investor protection and minimizing investment risks.
SEBI proposed guidelines in 2014, via a ‘Consultation Paper on Crowdfunding in India’ for crowdfunding aimed at improving access to funds for start-ups and small-to-medium enterprises.
The key SEBI guidelines on crowdfunding are:
- Only “Accredited Investors” may invest
- Qualified Institutional Buyers (“QIBs”) to hold 5% of issued securities; at least 5% of issued securities
- Retail Investor contribution: Minimum- INR 20,000 and maximum- INR 60,000
- Maximum number of retail investors- 200
- Start-ups which are less than two years old only, eligible to participate
- Disclosure details on proposed business plan, intended fund usage, audited financial statements, management details etc.
- Registered crowdfunding platform to conduct regulatory checks and basic due diligence of start-ups and investors; and Constitution of ‘screening committee’ by each platform comprising 10 persons with experience in capital markets, mentoring start-ups etc.
Summary
Crowdfunding can be a huge aid to entrepreneurs and early stage companies because funds can be raised with ease, without major compliances and it’s cheaper than other methods of raising funds. It is pertinent that the government makes proper regulations and laws to regulate digital crowdfunding, decide the rights of investors and liabilities of companies and intermediary platforms.
Close to 200 companies have raised INR 35,057,840- INR 45,074,366 on these platforms over the past 18 months as per a Sep 2016 report.
Transaction Value in the Crowdfunding segment amounts to $ 2 mn in 2019. Transaction Value is expected to show an annual growth rate (CAGR 2019-2022) of 0.7% resulting in the total amount of $ 1.8 mn by 2022. The average funding per campaign in the Crowdfunding segment amounts to $ 145 in 2019. From a global comparison perspective, it is shown that the highest transaction value is reached in China ($ 5,572 mn in 2019).
Crowdfunding and Fundraising Platform in India
The top three crowdfunding platforms in India (Ketto, Milaap, and ImpactGuru) raised Rs 271.65 crore (2.7 billion) in 2018. The amount was roughly 11% of the Rs 2,400 crore (24 billion) inaugural budget for Modicare— the government’s public healthcare scheme introduced in the same year. Together, Milaap and Ketto have raised over Rs 1000 crore (10 billion) for healthcare-related campaigns in the last five years, with a growth rate that doubles almost every year. Over 1,200 medical campaigns are started on Milaap every month, with a 3x growth per year on average. Ketto, on the other hand, hosts around 2,000 medical fundraisers per month and has seen a constant growth of 50% CAGR in the last five years.
The crowdfunding platforms usually charge a percentage of commission from the fund raised as service charge for drawing traffic to the campaign, providing the donors with smooth payment facilities and running and operating the website. Donation crowdfunding websites like Milaap take 5% of the total money raised, Ketto accepts a commission of 6% along with an additional Rs. 2000 for setting up the campaign at the website.
Usually the websites collecting donations for medical or social purposes, like Milaap, are also responsible for informing the donors of the status of their donation and updates on the campaign.
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