When in 2013 the World Bank defined what the factors to enable or deter a crowdfunding system are, they included Social Media Penetration alongside Domestic Credit Avait, Internet Users, Early Stage Entrepreneurial Activity, Informal Investor Rate and Education.
In particular they found out that positive factors for launching an investing platform are a strong social media usage linked to high degree of early stage entrepreneurial activity, strong friend and family funding network and access to education.
On the reason why social media are so important for launching a crowdfunding platform is the fact that crowdfunding investing
amplifies friends and family financing by bringing technology to the process of fundraising to make it more scalable, with the consequence that countries wishing to implement crowdfund investing must have a technology infrastructure that supports and enables these capabilities.
Hence, the fact that India overtook the U.S. to become the country with the highest number of Facebook users while became the second-largest mobile phone subscriber base after China matters.
In fact, if on one side it is essential to have an infrastructure in place, on the other the “costellation of trust” incubated by social media is pivotal.
Crowdfunding is democratized funding, says Jonah Berger, Wharton professor of marketing and the author of Invisible Influence: The Hidden Forces That Shape Behavior. For the internet economy as a whole, crowdfunding is just a small portion. But … it’s a big opportunity for folks trying to raise small amounts of money who can’t get funded by traditional means, either because of their credit score or the high interest rates. The amounts they are interested in may be too small for traditional lenders. Crowdfunding is a great way to get a small project through.”
According to Bain and Company’s India Philanthropy Report 2017, ‘There is a large market opportunity to gradually move about 7% to 10% of this online. India has the largest number of NGOs (non-governmental organizations) in the world (3.3 million) and over 350 million people who give to various religious and social causes every year.’
However, the pace of establishing crowdfunding platforms is slow. According to Wharton’s experts,
One answer is that the Securities & Exchange Board of India (SEBI) is trying to put some rules in place — but its pace is slow. And some feel that the sluggishness may hinder the fast-moving sector.
The market regulator has also written to social networking site LinkedIn — which has around 42 million users in India — to clarify whether it is acting as a fundraising platform by connecting funding groups and angel investors with startup opportunities.
There is another side to the picture as there are those who believe the delay is justified. For example, some argue that:
Equity crowdfunding online is not legal in the country as per SEBI regulations and thus we don’t do it,
while others claim that:
equity crowdfunding, in general, can be risky if it is unrestricted.
Of course there are different ways to overcome this issue, Wharton suggests. For instance, China sacrificed regulation for growth with the consequence that their crowdfunding market is the largest in the world while the U.S. introduced the JOBS Act to fuel the start-up environment.
Therefore the question of how to become catalyst of change still remain in the hands of regulators.