Boon for the Base: Crowdfunding for the Base of the Pyramid

Innovations in financial service business models, such as Grameen and M-Pesa, have driven seismic shifts in the way unbanked communities access capital.  Digital finance and big data are two trends that everyone in the financial inclusion is watching closely at the moment, and crowdfunding is a natural extension of these elements. According to the Crowdfunding Research Centre, global crowdfunding activity is doubling every 60 days, and represents another potentially significant shift in that way entrepreneurs and start-ups access capital and credit in the developing world.

For those of you unfamiliar with the crowdfunding phenomenon, it is the internet-enabled way for individuals or organizations to raise money from multiple individuals. The giving of money over the internet can assume four general forms: donation, which is essentially charity; presale/reward, where contributors receive a product or gift at a later time; debt, where their money is repaid, or equity, where contributors take a percent ownership of the venture.

More information on the mechanics of crowdfunding can be found in infoDev’s flagship report: Crowdfunding’s Potential for the Developing World (


Photo Credit: Bulent Suberk

Crowdfunding is growing fast. In 2013, the global crowdfunding industry grew to over $5.1 billion, the largest percentage of which occurred in the United States and Europe. The most dominant US based - presale/donation platform, Kickstarter, is growing exponentially, having raised over $1.4 billion over its lifetime, more than half of which was raised in just the last year. Our same infoDev crowdfunding report speculates that the potential market size for crowdfunding in the emerging markets could reach $96 billion by the year 2025, and many folks I speak with across the crowdfunding industry speculate that this number may be too small.

What makes this possible? The soaring growth in developed countries is enabled by a number of factors (regulation, technology, culture, etc), but perhaps the most important is an environment of trust between financial contributors and financial recipients. This environment is made possible by a robust network of shared connections on social networks, community affinities (and the thought leaders of these communities), and the ratings of other people on mainstream websites. Proponents of crowdfunding laud this “wisdom of the crowd” as an innovative methodology to assess risk in a novel way and overcome traditional barriers to finance posed by more traditional investors like banks or institutional investors.

It is important to note that the crowdfunding of debt in the developed world, which in the past, relied on the “wisdom of the crowd” principle by directly connecting borrowers and lenders, has now largely shifted to incorporate a more traditional credit assessment of borrowers. For example, the oldest and largest US-based lending platform,, which boasts peer-to-peer lending of more than $2 billion between more than 2 million members, now gauges risk much as a bank would through a combination of credit scoring and a proprietary “Prosper credit score” to determine a borrowers credit risk and cost of capital.

Regardless, the astounding market growth of crowdfunding in developed countries signals the well-functioning online ecosystem in which contributors can assess the risk of the recipients and confidently allocate their capital. At the end of the day, there are millions of people giving their money to people they’ve never met over the internet, and they are confident they’ll receive their just returns. This is enabling entrepreneurs, artists, architects, and others to buck traditional boundaries to financing to bring products and services to market in a collaborative and interactive way.

But how do these methods translate to developing world contexts where the online mechanisms of trust and risk assessment are less well established? It’s true that crowdfunding is still primarily a developed world phenomenon. But developing nations may have an opportunity to leverage crowdfunding, combined with mobile technology, social media, and start-ups, to build more efficient and effective systems for funding entrepreneurs and small businesses. These countries can use crowdfunding to leapfrog the traditional capital market and activate the substantial pools of untapped talent, entrepreneurship, and capital., which has issued microfinance loans to 802,679 borrowers over nine years, is an obvious leader in international crowdfunding for social purposes. It’s “Zip” pilot in Kenya is taking its model several steps further by building in a mechanism to assess risk locally. Kiva Zip uses pillars of the local community, who undergo online and social media research, reference checks, and security checks, to recommend borrowers who are trustworthy, have a viable business plan, and a clear purpose for any potential funding. However, Kiva is certainly far from the only player in this space. Here are a few other to watch, described in detail in a 2013 study by InfoDev.

  • mobilized $25 million in funding to entrepreneurs in 13 African countries and is pioneering exciting ways to involve Diaspora in the private sector development of their home countries;
  • Startme, a South African platform that so far has raised $45,000 for entrepreneurial and cause-related campaigns, without more recently available data;
  • Catarse, which has raised over $4.1 million from 40,000 members for more than 1,000 campaigns, without more recently available data;
  • Zoomaal, which has successfully funded more than 33 cause-related and entrepreneurial campaigns in Lebanon in less than two years.

Latin America, in particular, has seen dramatic growth in crowdfunding platforms. Starting with just five platforms in 2010, by 2013 this number had reached 41. This is a positive sign for the potential of crowdfunding in the region as platforms expand quickly to meet the demands in area where traditional access to capital has been difficult.

So this is the crux. The continued permeation of internet connectivity in emerging markets (especially in the form of smart phones), paired with further evolution of crowdfunding platforms, especially Zip-like risk assessment/pricing methodologies, and the dominance of mobile payments systems holds tremendous potential for access to finance for the base of the pyramid. The development community should continue to partner with the private and private sectors to synergize these emergent technologies and business models, while enabling capacity on the demand-side to the access to these new funding models.

infoDev, in partnership with the Kenya Climate Innovation Center, is currently running a pilot to enable climate technology entrepreneurs to leverage crowdfunding to scale their businesses. More information, including blogs, on this pilot can be found at

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