The Crowdfunding Scene in India : Still a Long Way to Go.

By Raghav Hegde

India first woke up to the potential of Crowdfunding, with the huge success of the super-hit Kannada language film, “Lucia”. Made by a struggling filmmaker called Pawan Kumar, using innovative crowdfunding techniques on Facebook and Twitter, Lucia made hefty profits, making $550,000 in the box office, surpassing by far the $100,000 spent on it. But, more than the excellent box office collections, and the prestigious awards won by its filmmakers, Lucia will always be remembered for being India’s very first online Crowdfunding success.

History & Tradition

Crowdfunding has always been a part of India’s rich heritage. It may be argued that every major temple built in India over the past two thousand years has been financed through money contributed by scores of devotees. Every mass based, popular festival or event in India, is made possible only because of financial support from the local people – businessmen, shopkeepers, housewives, factory workers and so on. What is different about the new Crowdfunding wave is that the process has gone online – to social media (Facebook, Twitter), or through several new Crowdfunding websites, such as Wishberry.in, Catapooolt.com, Start51.com, Fundlined,  and a half a dozen more, many of whom are members of the new National Crowdfunding Association of India.

India - a long tradition of crowds

This may be attributed to the new craze for online businesses in India, with many new ideas for such businesses striking it rich in the country. All sorts of online businesses have sprung up in India, from websites selling female lingerie and books to online travel booking and restaurant booking. However, Crowdfunding as a business is still to take off in India, and is not yet a money making proposition for its early adopters.

Slow to take-off

There are several reasons for the lack of momentum in online Crowdfunding in India. Most important is that, this business is not yet completely legal in India, with India’s most important financial regulatory body, SEBI, not yet allowing equity-based online Crowdfunding, where donors have a right to equity in the Crowdfunding project. So Crowdfunding projects in India are Donation / Reward based (where donations are accepted from contributors in exchange for rewards in form of the finished product – which could be a movie ticket of the film thus financed), or Lending based (where financing of projects is done in form of very small or micro loans). Further, since this is a completely new industry in India, and the promoters of these Crowdfunding websites are not exactly well known, there is a degree of skepticism and uncertainty about them, as far as the public is concerned.

How has this affected the Crowdfunding scene in India? A cursory glance at the Indian Crowdfunding websites would reveal that most of the projects showcased by them relate to films, cultural events and other forms of entertainment. For example, there is an initiative undertaken by Catapoolt.com, which is also its most ambitious project so far, that must be appreciated – a film called “Manjunath”, a bio-pic of an honest young Indian Administrative Officer who was killed while raiding the corrupt. This project has already raised $152,000 of the targeted $200,000. While this must be lauded, it does reveal two things. One, the relatively small size of the projects. Two, the fact that there are hardly any projects devoted to technological start-ups or innovative products, like those seen on Kickstarter.com.

This means that online Crowdfunding in India is still not being used by tech start-ups as a source of financial support. Of course, the most important reason for this could be that India is not an entrepreneur-driven country like Israel, so there is a shortage of tech start-ups in India. But still, this is a glaring shortcoming.

Where Crowdfunding saves lives.

One other sector that is quickly taking advantage of India’s nascent Crowdfunding scene is the NGO (Non-Government Organization) driven social sector, which is quite prominent in India, doing great work for the poor and needy sections of the population, neglected by the government. The micro-finance business, popularized by Nobel prize winner Muhammad Yunus of Bangladesh, is taking off slowly and gradually in India. The Micro-finance sector provides small and quick loans to extremely poor, self-employed people – fruit and vegetable sellers, small shopkeepers, bicycle mechanics and so on – many of them women. Sadly, this industry is dangerously on the verge of failure because of a complete lack of financial support. So, out of desperation, the micro-finance industry has turned to online Crowdfunding in a big way, with conscientious Crowdfunding websites such as Milaap.org accepting small funds from millions of middle class donors, and distributing loans to thousands of poor men and women in desperate need of finance to set-up small businesses and earn a sustainable livelihood. So, the importance of India’s tiny online Crowdfunding industry should not be underestimated.

The future.

The fact that there is a new Crowdfunding website introduced in India every other month, makes it evident that there are a lot of people who see a great potential in this industry in India. For this industry to really take-off, it is incredibly important that tech start-ups take to it for financial support. And this is only possible if equity-based Crowdfunding is allowed by the Indian government. A precedent has already been created by the United States through the JOBS program, and it is hoped that India too will soon make Crowdfunding perfectly legal. When that happens, potential for this industry in India is seemingly limitless.

 

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