The Centre has no plans for introducing a legislation to regulate fund raising through ‘Crowdfunding’ option, Rao Inderjit Singh, Minister of State for Corporate Affairs, said on Monday.

“There is no such proposal with the Ministry of Corporate Affairs”, Singh told Lok Sabha in a written reply.

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He was replying to a question raised by Member of Parliament Shashi Tharoor as to whether government plans to enact a law to regulate fundraising through “crowdfunding”.

Popular in West

Crowdfunding — a concept popular in the West— is seeing traction in India too for raising funds for medical, professional, personal, educational, creative causes/projects.

Under Crowdfunding, projects or a venture is financed by a group of individuals instead of professional parties like banks, venture capitalists or business angels.

Crowdfunding — which is an appealing choice of fundraising for start-ups — occurs without any intermediary and entrepreneurs tap the crowd by raising the money directly from individuals. In fact, the US in April 2012 enacted a specific legislation —Jumpstart Our Business Startups Act (JOBS) — that allowed for crowdfunding.

Singh highlighted that the term “Crowdfunding” is not defined in the Companies Act 2013 (Indian company law). The Minister, therefore, said that “no information was available” as to whether fund raising of private, non-listed companies through crowdfunding medium is a prevalent practice in India or not.

As the company law does not define ‘crowdfunding’, there is no question of MCA keeping a record of the total financing conducted through such route for such private, non-listed companies in India, according to Singh.

Meanwhile, commenting on crowdfunding, Sachin Tayal, Managing Director, Protiviti Member firm for India, told BusinessLine, “Crowdfunding is expected to contribute significantly towards fundraising in the light of present and foreseen market trends. Although businesses have various alternates to raise capital across banks, corporate investments and venture capital”.

Simpler and safer

Crowdfunding appeals as a simple and safer option having gained popularity during pandemic times, he said.

“As this area sees more action, we can expect regulators to step in with guidelines and policies to safeguard investor interest,” Tayal said.