Crowdfunding In India: Types And Legality


Crowdfunding in India: Overview

Crowdfunding is the method of raising vast sums of money, through donations made online from a vast number of potential people, for a project, idea, medical requirements, paying off debts, or simply raising money to become a millionaire (looking at you Kylie Jenner). The application of crowdfunding is huge. Crowdfunding has led to successful million dollar companies like Oculus (later acquired by Facebook for $2 billion), Pebble Wearable Devices, Bragi Headsets to name a few. Crowdfunding gets the publicity for your project, idea or goal which traditional methods to raise funds fail to.

Despite crowdfunding being an age-old concept, it has been rediscovered recently in India. The fundraising platforms in India are growing at a riotous rate. Currently, the market is at 300 crore rupees and is projected only for growth. Crowdfunding platform in India have been utilized for various purposes like medical emergencies, startups, personal requirements like paying off one’s debt and even hosting the locality puja.

India is widely regarded as a poor country where maximum people come from below the poverty line. With the help of some measures taken by the government, some of the people have shown little success. Crowdfunding is the best way we can solve so many issues in India. By setting up crowdfunding campaigns on top crowdfunding websites, we can help individuals and the community.

As per Invest India portal,  About 200 companies have raised INR 35,057,840- INR 45,074,366 on various crowdfunding platforms over the past 18 months as per a Sep 2016 report. Total transaction value in the crowdfunding segment is $ 2 mn in 2019. Transaction value is expected to show an annual growth rate (CAGR 2019-2022) of 0.7% resulting in the total amount of $ 1.8 mn by 2022. The average funding per campaign in the Crowdfunding segment amounts to $ 145 in 2019.

From the perspective of a global comparison, it is shown that the highest transaction value is reached in China ($ 5,572 mn in 2019).

The legality of Crowdfunding in India

Crowdfunding in India is legal with an exception. There are three types of crowdfunding usually practised India which are :

1.Equity-Based Crowdfunding

2.Reward-based crowdfunding

3.Donor-based crowdfunding

According to the rules, donor-based and reward-based crowdfunding is legal in India. Whereas, equity-based crowdfunding is illegal.

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If you have a startup looking for funds, crowdfunding is something that you are expected to look forward to. Approaching big companies for funding a project is far more time-consuming.

Crowdfunding takes place online. If one is looking for funds, they set up the base on one of the online crowdfunding platforms, describe their project, explain their goals and hope to get funded. There should be a goal set by one’s project.

Crowdfunding Rules In India

Let’s dive deeper into how crowdfunding works in India

  1. In the case of retail investors, the maximum amount of contribution possible is Rs.60,000/-.
  2. Startups aged more than 2 years are not allowed to participate in crowdfunding.
  3. The Crowdfunding platform which a startup or idea is going to use for fundraising must follow certain restrictions and rules set by the government.
  4. Often, accredited Investors may invest.
  5. The startup or idea must disclose their plans such as their business plans, their intended purpose of using the funds and the financial statements which are properly recorded and checked.

Despite the contributions of Demonetisation, SEBI is sceptical about the startups getting funded online.

In India, crowdfunding has been implemented by a few platforms like Impactguru to achieve their goals. Thus giving an easy method of fundraising in India. We can thus rightfully say that  Fundraising in India has never been easier.