What is Crowdfunding: All You Need To Know

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 History

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.

How Does Crowdfunding Work?

1. Crowdfunding is collecting small sums of money from multiple people for a specific project, business venture or social cause.
2. It uses a web-based platform or social networking sites to solicit funds for the fundraiser by showcasing the story to potential donors or investors.
3. According to the rules in India, equity-based crowdfunding is illegal, whereas peer-to-peer lending is regulated by the RBI.
4. Community crowdfunding which includes donation based and rewards-based crowdfunding are legal and are quite popular to raise funds for social causes.
5. The crowdfunding websites typically charge a fee for using their platform and services to bring money for the cause.

Types of Crowdfunding

As per IOSCO Staff Working Paper – Crowd-funding: An Infant Industry Growing Fast, 2014 (‘IOSCO Paper’), Crowd-funding can be divided into four categories: donation crowdfunding, reward crowdfunding, peer-to-peer lending, and equity crowdfunding.

Donation Crowdfunding

Donation crowdfunding denotes solicitation of funds for social, artistic, philanthropic, or another purpose, and not in exchange for anything of tangible value. Donation-based crowdfunding can also be used in an effort to raise funds for charitable causes.

Reward Crowdfunding

Reward Crowding refers to one wherein the investor receives some existing or future tangible product in return for the investment

Peer- To-Peer Lending

In Peer-to-Peer lending, an online platform matches lenders/investors with borrowers/issuers in order to provide unsecured loans, and the interest rate is set by the platform. Some Peer-to-Peer platforms arrange loans between individuals, while other platforms pool funds which are then lent to small and medium-sized businesses.

Equity Crowdfunding

Equity crowdfunding refers to one in which the investors gets equity shares of the company in return for the investment Heading 06: Future of Crowdfunding

There are three types of people involved in crowdfunding: –

1. The Entities that Intends to raise money through this platform
2. The Investor who support the idea
3. The platform which brings together the fundraiser and the Investor

Tips for Crowdfunding Success

This urgency can be multiplied if you’re using an Social For Action platform that only lets you keep your funds if you reach your fundraising goal.

Luckily, we’ve got some of the best crowdfunding tips that can help you raise more money and awareness for your cause, project, or event.

• Target your message.
• Learn what makes a good campaign and a bad one.
• Build a community before launching.
• Speak to experts.
• Know your launch target.
• Use multimedia
• Research and Prepare
• Ask for Donations Early
• Ask the Right People for Donations
• Be Specific About What the Money’s Going Toward
• Offer Incentives (When You Can)
• Write Compelling Copy When You Share Your Crowdfunding Page
• Update Your Crowdfunding Page

Crowdfunding Sites 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.

We work across sectors including cleantech, health, work and learning, food, and social inclusion, providing support to enterprises focused on early cancer detection to community power co-operatives producing renewable energy.  We work to help them raise capital so they can focus on their business.

We work with all investors, from foundations and family offices to everyday investors, to help them identify opportunities and to support their decision-making efforts so they can match their money with meaning.

To get you started, here are just a few of the best crowd funding platforms to donate

• SocialForAction
• FuelADream
• Ketto
• ImpactGuru
• GiveIndia

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).

Related Blog: Is Crowdfunding Legal in India

How to Start Crowdfunding on SFA

SFA is a tech-for-good platform that provides complete crowdfunding solutions to empower individuals, NGOs and social enterprises to raise funds for medical emergencies, personal needs, creative projects or any social cause – be it big or small. We aim to bring together generosity with need to maximise people’s potential to do good.

As a team, we assist, innovate, collaborate and support anyone who wants to use crowdfunding to make a positive difference. On any given day, you will see us talking to campaigners, writing their stories, making the platform more functional, reaching out to more NGOs and disbursing funds. We believe we can change the world – one fundraiser at a time.

For Non-Profits and Individuals

Start fundraising with a simple on boarding process and 0% platform fees, we have made fundraising an easy experience for all NGOs, big or small. Join us today and start fundraising.