Crowdfunding, the practice of raising funds for an enterprise, project or cause from many individuals, is growing at a phenomenal rate. It was estimated at over US$34 billion worldwide in 2015. The ease with which pitches can be made and funds pledged have led to a boom in crowdfunding platforms like GoFundMe, Indiegogo, Kickstarter and Singapore-based GIVEasia and Giving.sg. Social media is also being harnessed to raise funds from large online crowds as the returns can be staggering at times. Smaller contributions lower risks to the point that many generous souls give impulsively. As donations snowball, recipients are enriched by the power of aggregation.
There is no doubt that the responsible use of crowdfunding tools can help young and independent entrepreneurs, inventors and start-ups to pursue their vision without having to rely on financial institutions, which exact higher fees and might demand collateral, guarantors or a proven track record in order to dispense funds. The model can also be tapped by small and medium-sized enterprises to ease their cash flow by, for example, getting short-term loans via MoolahSense, an invoice financing service. However, those who offer money must do so with their eyes wide open as not all ventures succeed, promises might not be kept and deals can subsequently go sour. One local crowdfunding scheme, which promised annual returns of up to 24 per cent, was wound up unexpectedly and burnt small-time investors.
There are rules now for lending-based and equities-based crowdfunding platforms here. Those dealing with retail investors have to obtain a capital markets services licence and set aside a capital base of $500,000. It is right to distinguish retail investors from accredited and institutional investors and to offer the public some protection, as laymen might not be alert to all the risks involved.
Pure donation-based crowdfunding opens a different set of issues. Not expecting any financial returns, people might be less vigilant about the altruistic causes they support. In one case, a woman who sought money for immunotherapy raised $771,962 from the public.
No eyebrows would be raised if donations are private in nature, for example, when there is a direct relationship between the donors and the recipient. But when fund-raising appeals are made to the public at large, one would expect some rules to be emplaced to prevent the unscrupulous from reaping a bonanza by exaggerating details to eke sympathy. In this light, there is merit in having the Commissioner of Charities look out for misrepresentations when social media is used to seek funds from the public. When the circumstances are suspicious, steps ought to be taken to stop or limit appeals for donations. If Singapore is to become a philanthropic hub, it is proper to shield public generosity from opportunists.