How humans handle monetary transactions has undergone massive transformations over the ages. From the barter system of pre-modern societies to today’s cryptocurrency, financial practices have adopted various forms depending on the prevailing societal and economic conditions. Among these unique monetary practices is crowdfunding, which is gaining traction in India. Crowdfunding is the practice of raising capital from a large number of people to fulfil a monetary obligation or fund new ventures. The practice, as we know it today, can be traced back to 1997 when fans donated money to an escrow account of British rock band Marillion to fund their tour.
Crowdfunding in the internet age
As mentioned above, crowdfunding works when a section of people pay for a common cause. This can range from funding a new business venture to philanthropic activities. The scope of crowdfunds has widened thanks to the internet. The rise of social media has simplified the first step of crowdfunding – conveying requirements to a group of potential donors or investors. It helps effectively advertise a venture, gauge the audience’s response, and actively nurture a network of investors.
As per Vantage Market Research, the increasing use of social media has expedited the growth of the global crowdfunding market. In 2021, the global crowdfunding market recorded a value of USD 13.35 billion. By 2028, the value is estimated to be USD 43.48 billion.
The Covid-19 pandemic has also aided the growth of the crowdfunding market, with economic activities becoming increasingly digitised. As the pandemic eroded the financial and social capital of people globally, crowdfunding campaigns grew in popularity as effective fundraising tools.
Crowdfunding in India
While crowdfunding in India may still be in its nascent stages, the growth in digitisation and mobile penetration in the country has led to the expansion of the crowdfunding market.
Regarding social media, India has the largest Facebook audience in the world. Thanks to increased digitisation, the number of internet users in India in 2021 was pegged at over 69 crores. Simultaneously, India’s digital payments market is expected to hit $10 trillion by 2026. These numbers are significant because much of crowdfunding in India is powered by mobile phones. As per Statista, the total transaction value of the crowdfunding market in India will reach USD 7.6 million by the end of 2022.
The increased digitisation in India also coincided with the pandemic, which saw more people adopting crowdfunding for economic and philanthropic activities. For instance, crowdfunding startups in India, such as Ketto, witnessed a 4X growth during the lockdown. Platforms dedicated to strictly funding projects and business ventures have also successfully emerged in India.
While crowdfunding is undoubtedly gaining traction in India, there is also tremendous untapped potential considering factors such as the large population, volume of NGOs and the growing startup ecosystem.
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Crowdfunding is a flexible monetary model that allows individuals and businesses to raise funds. It has gained tremendous traction in India over the past few years due to accelerants such as the pandemic, increased digital penetration, and benefits like ease of business. Crowdfunding offers a first-mover advantage to investors when it comes to backing pre-IPO ventures and provides a level-playing field to all parties. Before making any significant investments, it is essential to keep in mind the SEBI-proposed framework for crowdfunding in India. Given that crowdfunding in India is still in its nascent stages, you must thoroughly research the platform and recipient before investing.