Asia Report: Crowdfunding starts to gain traction
It’s still early days for crowdfunding efforts in the region, but volumes have started to pick up sharply and banks are proving willing to partner with crowdfunding platforms.
It’s still early days for crowdfunding efforts in the region, but volumes have started to pick up sharply and banks are proving willing to partner with crowdfunding platforms.
Small and medium enterprises (SMEs) represent the main engines of growth in Asia and account for more than 97% of all businesses as well as more than half the region’s workforce, according to the Asia-Pacific Economic Cooperation (APEC) forum, which has its own SME working group (SMEWG).
Despite this, obtaining funding has proved difficult for many of them. Whether it’s due to their having insufficient credit history, the costs of onboarding being too high or other reasons, SMES have often struggled to secure loans from banks.
In recent years, however, alternative financing has begun to fill some of the funding gap. One of the fastest-growing sources of this financing has been crowdfunding, which refers to funding a project or a company by raising small amounts of money from a large number of people. Crowdfunding can include both peer-to-peer (P2P) business lending or equity-based crowdfunding.
Volumes are small, but growing fast
The amount of crowdfunding in the region is still relatively small. Research firm Massolution estimates that global volumes more than doubled from US$16bn in 2014 to US$34bn in 2015. While just US$3.4bn of that volume came from Asia the growth rate was the highest of any region, at 320% in 2014.
The largest volume of crowdfunding in Asia is, not unexpectedly, in China where the recently-published Harnessing Potential report compiled by Cambridge University, Tsinghua University and the University of Sydney estimated equity-based crowdfunding at US$948m. Outside of China, according to the report, P2P business lending totalled US$355m and equity-based crowdfunding totalled US$64m.
More platforms are starting up
Much crowdfunding comes through online platforms, of which the number is growing rapidly. While rewards-based crowdfunding on platforms such as Kickstarter and Indiegogo often grab the headlines, lending-based and equity-based crowdfunding actually dominate the industry.
In China, the 2015 China Equity Crowdfunding Industry Research Report issued by Beijing Jingbei Financial Information Services and Shanghai Jiao Tong University found that there were a total of 159 crowdfunding platforms in China at the end of last year, with 46 launched in 2014 and 75 set up in 2015. Key players include Renrentou, Zhongtoubang, Aijiutou and Yuekechuangtoujie.
Outside China, countries in Southeast Asia have a significant number of platforms, and the numbers in key East Asian markets are also expanding. In Korea, the Financial Investment Services and Capital Markets Act that was approved in July 2015 and enacted in January this year has paved the way for equity-based crowdfunding to grow.
In Southeast Asia, Malaysia took an early lead when it passed amendments to its Capital Markets and Services Bill in 2015 and quickly approved at least half a dozen crowdfunding platforms. While Singapore only has a consultation paper issued by the Monetary Authority of Singapore in 2015 as its guideline so far, and MAS only opened crowdfunding to accredited investors and institutional investors, at least eight platforms are actively raising funds.
Trends in some markets also provide early indicators of how crowdfunding can address specific market needs. While volumes might still be small in Japan, the Financial Times reported that the proportion of Japanese women seeking to raise money via the country’s largest online crowdfunding site, ReadyFor?, has risen to 50%. In addition to traditional lending, Bloomberg reports that Islamic crowdfunding has started up as well, with companies such as Kapital Boost in Singapore enabling small businesses to use crowdfunding to access temporary liquidity for goods and capital purchases in Shariah-structured deals.
Together with providing much-needed funds for businesses, crowdfunding can be lucrative for investors. According to Moolahsense, which promotes itself as Singapore’s leading P2P lending platform, investors can earn up to 21% per annum, for example, while rival Capital Match says investors can “enjoy net APR of 15-25%.”
Seeing both a potential threat to their business and an opportunity, banks have started to jump into the fray by partnering with crowdfunding platforms. First up was UOB Bank in Singapore, which announced itself as the first major Asian bank to sign a partnership with a global equity crowdfunding platform when it inked a collaboration agreement with Israel’s OurCrowd in March. DBS Bank in Singapore followed suit earlier this month, when it signed cross-referral agreements with MoolahSense and another P2P lending platform Funding Societies.
The future of crowdfunding
While volumes are low and represent just a small fraction of total business lending in the region, crowdfunding can be a lifesaver for companies and a lucrative opportunity for investors. Borrowers such stones specialist Elite Stones’ director Ellington Ong, who described getting a loan through Moolahsense as “super-fast in terms of simplicity and hassle-free,” are satisfied with their experience. With regulators in many markets taking steps to support crowdfunding, volumes look set to continue to grow at a rapid pace.