Crowdfunding and Crowdmicrofinance, an Evolution of Models for Entrepreneurship of the Poor

Abstract

After the boom of microfinance, we witness boom of crowdfunding. Thus, it is interesting to study their interactions. Benefiting both of a rich historic heritage, these two notions, even though non-synonymous, aim at similar goals. Funding of the economy for the latter poverty alleviation and financial eradication for the former-in its welfarist definition-make it quite logical that these two notions meet to serve each other. Indeed, they stand to be a major lever for entrepreneurs, for whom fundraising has always been an issue. Microfinance has become a tool of democratisation of entrepreneurship funding, while crowdfunding potentially opens entrepreneurship funding to masses. Combining both crowdfunding and microfinance can lead to an acceleration of poverty eradication.

On subsistence‐type rural independent retailers and crowdfunded microfinance—Prosocial lending, nudges, and unintended consequences

“…This results in risk reduction while ensuring enhanced profitability. Researchers argue that this latter model is likely to be the predominant operational form that microfinance takes in the coming years (Anglin et al, 2020; Assadi et al, 2018; Attuel‐Mendes, 2016). Probably because of these reasons, some have even gone so far as to call crowdfunding “the new hope” for the microfinance sector (Luo et al, 2022, p. 373).…”

“…Various examples of such crowdfunded microfinance platforms exist, including Kiva , WWGF , and Babyloan . According to the WorldBank (2017, p. 4), such “crowdfunding platforms have created low‐cost commercial models that can be leveraged by formal financial institutions to increase operational efficiency and offer a wider array of products to low‐income populations.” Given the explosive growth in this sector, it has been estimated that the size of the crowdfunded microlending may grow to be double the size of the global venture capital industry and may far exceed traditional microfinance by 2025 (Assadi et al, 2018; Attuel‐Mendes, 2016; Luo et al, 2022). Other estimates suggest that crowdfunded microfinance may be able to add as much as 25% to the overall capital pool of poor countries compared to what is currently available to them through all sources combined (Fonrouge & Bolzani, 2019).…”

Peer to Peer Lending Platform can Influence investors to help Capital for Small Business Enterprise

“…Financing a project or a business does not require large amounts of financing at the same time, but the financing can be done by collecting some funds from several investors so that collected into one large fund or can be called crowdfunding [11]. The method of raising funds or commonly referred to as crowdfunding can be used by all societies in general by utilizing the internet as a medium for collecting donations in the form of money or other benefits, where donations in the form of finances are often without the expected rewards that can support an objective of the funding [12]. There are four types of crowdfunding: (1) Equity-based crowdfunding; (2) Lending-based crowdfunding (Investment Crowdfunding); (3) Reward-based crowdfunding; (4) Donation-based crowdfunding [13].…”