Crowdfunding investment comes under global scanner

Written by PTI | New Delhi | Updated: Feb 7 2014, 16:18pm hrs
International Organisation of Securities Commission (IOSCO), a body of market regulators across the world including Sebi, has called for greater regulatory checks on crowdfunding investment products to avoid any potential systemic risks in future.

Taking cue from financial market regulators in the US and the UK, India has also begun looking into a possible framework for crowdfunding, an emerging way for raising funds by pooling money from people through Internet.

While it is still in a nascent stage in India, compared to large markets like the US, China and the UK, the trend is catching up fast, especially in the wake of emergence of social media as a key platform for such activities.

Crowdfunding typically involves young entrepreneurs and small groups of people raising funds for their ventures through various online platforms. Of late, such platforms are also being used for launching products that promise certain financial returns to the contributors.

In a new report, the research department of IOSCO, of which Indian capital markets regulator Sebi is a key member, has said that the financial return crowdfunding market (FR crowdfunding) has doubled year-on-year for the last five years to an estimated $6.4 billion in 2013. This has been mainly driven by an annual growth of 90% in peer-to-peer lending.

Peer-to-peer lending has spread across the globe, making FR crowdfunding a global phenomenon. The equity crowdfunding market is more modest in size and has grown at a slower pace, the IOSCO Staff Working Paper report said.

In India, there are no clear regulations as yet for such activities and therefore, a need has been felt to put in place a regulatory framework if such platforms involve large amounts of money or issuance of securities. This will help check any money-laundering activity or other fraudulent acts in the name of crowdfunding, a senior official said.

Another official said that any crowdfunding involving sale of securities can be either regulated under Sebis existing norms for Collective Investment Schemes or Alternative Investment Funds, or altogether new rules can be prepared depending on discussions among various stakeholders.