This study provides a summary of crowdfunding initiatives that support developing country entrepreneurs. The purpose of the paper is to present an overview of the crowdfunding industry to help the Department for International Development (DFID) of the UK Government assess the need and value of supporting such initiatives – particularly for climate and environment innovations.
Published by: Evidence on Demand, UK (2013)
Authors: Oliver Gajda and James Walton
The authors give an overview of the main concepts of crowdfunding and the role of crowdfunding in the development sector. It also provides an outline of the different crowdfunding models including donation-based, reward-based, social lending, lending and equity. For each model, we describe the types of projects supported, average funding amount, frequency, financing arrangements, fees, funders, due diligence processes and rates of success. We also provide examples of relevant platforms, generic platforms and projects for each model. Lastly, this paper presents a range of examples of crowdfunded projects with a focus on pro-poor energy technology.
We conclude that crowdfunding can positively support development programmes through a number of applications. It can improve access to capital, help manage supply and demand, drive innovation and efficiency and fund new markets. Through crowdfunding, entrepreneurs can also benefit from aggregating and understanding demand for a given product or service and from an assessment of a proposed pricing.
We suggest that co-operations can be struck between the development sector and specific crowdfunding platforms for co-funding strategies that are aligned with the development agencies goals.
Pre-sales – as a form of reward-based crowdfunding – has significant potential for the development of customer facing products and services. Here we see significant potential for supporting entrepreneurs from developing countries with additional institutional lending. Furthermore, this paper suggests that recoverable grant making can be facilitated for micro-lending. Similarly, debt crowdfunding can be used to support lending schemes in the development sector. Although equity crowdfunding is currently subject to strict regulation, we conclude that it can also be used to support businesses and innovations in the developing world.
Lastly, we conclude that despite the fact that development focused crowdfunding platforms do not yet exist in significant numbers and across crowdfunding models, with the exception of micro-lending and very few renewable energy focused crowdfunding platforms, we think that a strategic partnership with crowdfunding platforms can create positive synergies and create opportunities for crowdfunding platforms to enter into a new market.
We recommend further study in this area. We believe that research with a focus on the design and viability of development-focused hybrid crowdfunding initiatives would be particularly beneficial. We also identified a lack of information related to M&E and Due Diligence processes of crowdfunded projects. An analysis of primary and secondary sources through interviews, in-depth assessments of live projects and statistical analysis could provide more insight on these processes and how to make crowdfunding more accessible to entrepreneurs in the developing world.