Crowdfunding, innovative way of financing for MSMEs

Crowdfunding presents micro, small and medium enterprises (MSMEs) and startups with an opportunity to increase access to finance using social networks and online communication.

Philippine Chamber of Commerce and Industry (PCCI) president George Barcelon said there was a significant increase in businesses that operated through online platforms during the coronavirus lockdown, especially as more young entrepreneurs engaged in social media to drive investments, sales, and income.

“I can see the desire of the young entrepreneurs to create and expand their businesses as the economy continues to recover. However, their lack of credit history and collateral is a challenge. This is where crowdfunding comes in,” he said in a webinar.

Barcelon said crowdfunding is a practice of funding a project or venture by raising many small amounts of money from a pool of participating people on the internet and a “very innovative way of financing.”

“Crowdfunding usually supports innovative, fresh, and new ideas of greatest potential, providing useful and relevant information which will greatly help in tapping the right crowd to support new investments,” he added.

Citing the United Nations Development Programme, Krizia Pauline Ferrer, securities examiner at Securities and Exchange Commission (SEC), said individuals and companies have raised billions of dollars in debt, equity, and donations over the past decade using social networks and the viral nature of online communication.

Ferrer said crowdfunding emerged from innovation in technologies that made it possible for businesses, nongovernmental organizations, and individuals to secure funding with no or limited intermediation.

“Crowdfunding has the potential to contribute to financial inclusion efforts by providing improved access to funds and financial assets,” she said, noting the International Finance Corporation (IFC) estimates a $220-billion credit gap in the Philippines.

Ferrer said the crowdfunding market can take advantage of the surge in mobile cellular subscriptions. She said the rapidly expanding market for sustainable finance also presents an “exciting opportunity” as demand for socially responsible investments increases. Ferrer further said that despite their increasing importance, sustainable entrepreneurs often face problems getting funding from traditional sources due to the higher complexity of their value proposition.

“The crowdfunding market can bridge this gap in financing so crowdfunding is an ideal source for sustainable entrepreneurs as their focus on socially relevant aspects is likely to attract interest from a larger number of backers who are motivated to invest in the social good,” she added.

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