I. Some context behind the rise of crowdfunding
Agrawal et al. (2010) described the rise of CF in the context of three factors:
(i) the shortage of capital engendered by the current global crisis that prevents funds being raised for entrepreneurial projects.
(ii) the evolution of Web 2.0 technologies, which has made easier to develop the platforms that enable project initiators and providers interactions.
(iii) the success of the companion crowdsourcing phenomenon.
The age of austerity is key to understanding the growth in size and popularity or crowdfunding. However it is clearly not the only reason. While there are a few CF platforms which emerged prior to the financial crisis in 2007, the vast majority of the more than 840 platforms currently identified (Crowdsurfer, 2013.,) have appeared since 2007 – in particular since 2011. In 2012 there were estimated to be 450 crowdfunding platforms worldwide (Massolution 2012,) which has increased by almost 50% to date. Yum (2012, pg.470,) noted that the recession triggered by the global financial crisis, led to massive increase in demand for CF services such as microfinance.
The rise of crowdfunding over the past few years has occurred within an age of austerity when government spending is being slashed across the board and banks are not lending to individuals and small businesses. This has affected organisations across the spectrum from charities’ funding, welfare and healthcare spending, higher education and social enterprise funding to small and medium sized enterprise finance. These cuts have left a great deal of demand for financial services which alternative financial services providers such as crowdfunding are growing to meet.
Other alternative finance providers such as microfinance institutions arose out of the lack of funding provided to poor people – ‘the unbanked,’ as demonstrated by Grameen Bank and BRAC. Those excluded from mainstream financial services have very few options available to them for their various needs. Increasing interest by the World Bank for the potential of crowdfunding to provide access to development finance is another area which coincides with anticipated cuts to international development budgets and again reflect the potential of crowdfunding as an alternative finance option to fund individuals and ventures which are losing funding through state-led and private institutions.
Kieran Garvey @Microwdfinance