UPSC Express

What is Crowdfunding

• Crowdfunding is asking a crowd of people to donate a defined amount of money for a specific cause or project in exchange for various rewards.
• It is the practice of pooling in of resources by numerous people, thus the term ‘crowd’, to fund prospective projects.
• It is an alternative finance system where funds are raised through mediums like internet-mediated registries, mail-order subscriptions, benefit events, and the like.
• Crowdfunding is usually done via online platforms.
• The fundraisers set up their public campaign highlighting the main features of their proposed project and accepting donations for the same.

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• These funding applications can be of any nature. They can range from charitable to educational projects to personal ventures or creative ones.
• There are three general categories crowdfunding can fall under: Equity, Donation, and Debt.
• Equity-based crowdfunding is asking a crowd to donate to your business or project in exchange for equity.
• Donation-based crowdfunding is asking a crowd to donate to your project in exchange for tangible, non-monetary rewards such as an ecard, t-shirt, pre-released CD, or the finished product.
• Debt-based crowdfunding is asking a crowd to donate to your business or business project in exchange for financial return and/or interest at a future date.

Crowdfunding in India:

• Crowdfunding is nothing new to India.
• Since centuries we have been donating ‘chanda’ for some or the other socio-cultural cause, such as building of religious infrastructure.
• The online scene is a bit of a different matter though.
• So the crowdfunding scene in India is rather new with not much awareness amongst people.
• Crowdfunding, presently in a pubescent stage, has to face a lot of problems in India.
• Firstly, there is no proper legal regulation setting up rules regarding and specifying the same.
• But late last year, the Securities and Exchange Board of India (SEBI) released a paper acknowledging the need for the regulation.
• It defined crowdfunding as “solicitation of funds (small amount) from multiple investors through a web-based platform or social networking site for a specific project, business venture or social cause.”
• Secondly, people in India are still adjusting to a digital lifestyle where most transactions take place online.
• Moreover, the industry is still unable to connect to people, though, efforts have been made in this direction.