Crowdfunding in Asia: An Unseen Bright Future
Asia is currently the second largest crowdfunding market worldwide. Yet, it has somehow slipped under the radar despite its meteoric growth over the past years, no doubt overshadowed by North America. Fintechnews.sg cites a 2015 report from KPMG that found the APAC region excluding China recorded a volume of US$1.12 billion in 2015. This is a 313% year-on-year growth rate from the US$271 million raised in 2014. Yet this statistic was dwarfed by China alone, which registered US$107 billion in 2015, making it the world’s largest online alternative finance market in transactional volume.
Crowdfunding in Asia is still dwarfed by that of the US – 10.54 billion in revenue versus 17.2 billion for the latter as of 2017. However, if we take the history of crowdfunding into context this should not come as a surprise. US market players like Kickstarter and Indiegogo have been around for much longer than their Asian counterparts, giving the crowdfunding model more time to grow.
More ways to get funded
The bulk of businesses in Asia, particularly SEA, are made up of small/medium-level enterprises (SMEs). SMEs however are grossly underserved by the banking system. Institutions frequently do not service SMEs due to their lack of a track record, leaving them trapped in a fundamental paradox. Studies by the Asian Development Bank revealed only 18.7% of total bank lending were to SMEs in Asia. The 2009 financial crisis has driven this downwards even further. Crowdfundinsider places an estimated 9 million SMEs that do not currently have sufficient access to financing.
Alternate financing has emerged as a way to solve these issues, owing to the widened pool of innovative ideas that society can dip into. While already-established options such as Kickstarter and Indiegogo exist for reward and donation crowdfunding, their functionalities are restricted to the regions they are available in – anyone outside these regions will not be able to run crowdfunding activities. Additionally, few options exist for debt and equity due to its inherent nature with securities and therefore involvement with a wide range of legislations across different markets.
These gaps have left an opening for local players to fill. Around Asia, several regional crowdfunding sites have risen as alternatives to established giants Kickstarter, Indiegogo and GoFundMe.
Governments are also seeing the potential for crowdfunding beyond “traditional models”. In 2012, the US government enacted the JOBS Act. This allows non-accredited investors to participate in equity crowdfunding; previously, only investors with a net worth of over $1 million USD could do so. Meanwhile, Malaysia became the first ASEAN country to introduce a framework for equity crowdfunding. Other countries are following suit with their own laws and other efforts to protect backers across the different modes of crowdfunding to bring clarity to the industry.
When in Rome, do as the Romans do: Understanding the Market
Local players entering a market have an advantage over foreign market players – such as intimate, first-hand knowledge of their market. In the case of Philippines, it would be the appearance of crowdfunding platforms dealing exclusively in agriculture.
Business is business, after all. In Philippines, a significant portion of its economy comes from agriculture. This has given rise to a unique type of crowdfunding geared to agriculture. In predominantly service-based economies like Singapore, where agriculture makes up less than 1% of her GDP, it makes no sense to have such features. Sites like Cropital and FarmOn are crowdfunding communities in Philippines where people can help farmers with their financial needs. At the same time, they earn rewards once the crowdfunded crops are sold on the market.
The Future That Lies Ahead
Crowdfunding in America may be huge, but other countries are catching up fast. It has emerged as a workaround to the “domination” of established institutions and entities in securing funding. The support of a once-untapped Internet community has given impetus to projects and ideas that would otherwise face huge financial risks no institution is willing to swallow.
Traditionally, gatekeepers have worked to help “safeguard” the general community. However, studies are increasingly showing that the everyday “mom-and-pop investor” deserve much more credit than their reputation confers. Developments in legislation as well as technology to safeguard investors have the potential to unlock vast amounts of investor’s funds. This expands potentially to other resources, all buoyed by a communal interest in a project.
These developments and untapped potentials alone are lucrative incentives for firms to develop innovative solutions, guided by the community instead of corporations. Additionally, with the rise of fintech/blockchain, developers are likely to scramble to implement these technologies as a differentiator – or to open up accessibility to otherwise “unserved” regions. Both of these will help crowdfunding and ideas grow in an otherwise saturated, crowded market. Black Lotus is in the process of development, while another upcoming platform, PledgeCamp, is in the process of fundraising. It reported that it had secured $17m USD worth of pledges out of its $20m goal as of 17thFebruary 2019.
What are your thoughts on the future of crowdfunding, in Asia and beyond?