4th Joint Research Conference Dijon, June 24th, 2013

Crowdfunding platforms for microfinance: a new way to eradicate poverty through the creation of a global hub? Dr. Laurence Attuel-Mends Banque Populaire Chair in Microfinance

Introduction
Some figures:

2.47 billion individuals live with less than 2$ per day (World Bank, 2012) Crowdfunding is a billion-dollar industry One new platform each day Crowdfunding platforms (CFPs) raise millions of dollars each year
This raises new hopes for the finance area But choosing among hundreds of CFPs is very difficult This article aims at clearing what is crowdfunding and how it can be a lever for funding microfinance projects and by extension a new means to get rid of poverty
2

Contents

I. A. B.

Crowdfunding, from yesterday to tomorrow Crowdfunding, an innovative concept coming from history Crowdfunding, an old concept refreshed by using innovative tools Crowdfunding platforms as new levers for microfinance? Overview of the existing issues in choosing the CFP Overview of the landscape of crowdfunding in microfinance field Suggestion of the launch of a brokerage platform

II. A. B. C.

the

I Crowdfunding, from yesterday to tomorrow

A Crowdfunding, an innovative concept coming from history

Crowdfunding put under the spotlights with the US JOBS Act (2012)
Aims at easing regulatory and reducing financing burdens on smaller companies Covers the scope of fundraising by the crowd

Academic and professional definitions of crowdfunding:

Financing of a project or a venture by a group of individuals instead of professional parties (Schwienbacher and Larralde, 2012)

I Crowdfunding, from yesterday to tomorrow

A Crowdfunding, an innovative concept coming from history

Historical approach:
ROSCAs: XIXth century in Africa, IInd century in Asia A group of individuals decide to create a common fund where each person deposits the same amount of money Money <= crowd people people Crowdfunding people people NO Ex: Riskstronicks.net (circularia): circles of maximum 365 members who are trusted persons who have received a reference by existing users
5

I Crowdfunding, from yesterday to tomorrow

A Crowdfunding, an innovative concept coming from history

Historical approach:
Cooperatives XIXth century in Europe and North America They gather funds from those in a community who are able to save Savers and borrowers are all shareholders of the cooperative Money <= crowd people people Crowdfunding people people NO Ex: Raiffeisen Bank
6

I Crowdfunding, from yesterday to tomorrow

B Crowdfunding, an old concept refreshed and completed by using innovative tools

The global village of MacLuhan (1967)

Tremendous enlargement of possibilities to foster entrepreneurship rendered possible thanks to the numeric revolution Internet => access to a larger number of funders and entrepreneurs

while remaining great difficulties to get a credit

I Crowdfunding, from yesterday to tomorrow

B Crowdfunding, an old concept refreshed and completed by using innovative tools

The four types of crowdfunding:

Donation-based: charity, ex: Caritas Reward-based: investors receive an item or services in return, ex : Kickstarter (tremendous success of Pebble project) Lending-based: 30 platforms dedicated to microfinance (amongst around 500) in the world, act as an intermediary between MFIs and lenders, with (ex: Zopa) or without interest (ex: Microplace) without or with a fee (ex: Babyloan) Equity-based: investors receive a stake in the company (control and risk), ex: mymajorcompany

II Crowdfunding platforms as new levers for microfinance?

A Overview of the existing issues in choosing the CFP

Key figures
175 million direct beneficiaries of MF: 100 million rise out poverty (Maes and Reed, 2012) Crowdfunding is likely to create 60 million new angels investors thanks to JOBS Act (Kitchens and Torrence, 2012)

Main issues
Each CFP has its own guidelines, even if share the same basic framework Entrepreneur doesnt have access to the numeric tools (only MFI has) All or nothing system does matter for MFIs (refinancing) Fees charged by CFPs Regulation can change from country to country and also in a same country (federal state or different kind of crowdfunding)

II Crowdfunding platforms as new levers for microfinance?

B Overview of the landscape of crowdfunding in the microfinance field

Methodology
Interviews with representatives of crowdfunding actors in microfinance: one pure player (Invy, reward-based), one click and mortar (Caritas, donation-based) and one brick and mortar (RITA, lending-based)

Results
Variety of challenges faced by the entrepreneurs, the institution trying to collect funds from the crowd and the MFIs
Invy: Difficulty to raise funds, to be known Caritas: State handouts, lack of tax cuts RITA: Issue of raising funds, reimbursement

Numerous actors, fast growth of the microfinance industry, regulation and supervision expenses, risk of fraud Great opportunities: suitable for different sizes of enterprises and projects, low cost, quick
10

II Crowdfunding platforms as new levers for microfinance?

C Suggestion of the launch of a brokerage platform A single website pooling safe microfinance CFPs and dispatching to each website depending of the filters used by the internet user

Pros
Clarification of the information for both investors and entrepreneurs
Guarantor for both borrowers and lenders with the help of institutional platforms in MF such as EMN, e-MFP

Stars system for the ranking of the projects, the MFIs linked and/or the websites
No problem of more time consuming than before thanks to the filters used (type of crowdfunding, region, gender, social impact) Cut of communication costs for each platform

11

II Crowdfunding platforms as new levers for microfinance?

C Suggestion of the launch of a brokerage platform A single website pooling safe microfinance CFPs and dispatching to each website depending of the filters used by the internet user

Cons
Language: English is mandatory but could be a difficulty for internet users
Time for the existing accredited platforms to send their information to the brokerage platform

Strong organization
Massive adhesion to the project of main actors

12

Conclusion and further research

The launch of this platform of the platforms meets a need and is technically possible
This would permit to collect important data about the funders (gender, age, frequency) This raises new questions: Is this replacing traditional donations or savings? What about the attachment to online projects, compared notably to that in ROSCAs and credit associations?

13

Crowdfunding platforms for microfinance: a new way to eradicate poverty through the creation of a global hub?

Thank you for your attention Any questions?

Laurence.attuel-mendes@escdijon.eu

14