Markets

Crowdfunding concept may not be big hit here, say experts

K. R. Srivats New Delhi | Updated on October 24, 2013 Published on October 24, 2013

‘Cost of regulation is bound to be high’



Crowdfunding may not be a buzzword as yet among Indian policymakers and regulators overseeing the financial markets.

But given the recent policy thrust from the US on this front and that the US Securities and Exchange Commission (SEC) has issued draft rules, Indian authorities may soon be compelled to sit up and take notice.

The jury is still out on whether India too, like the US, should permit securities-based crowdfunding.

However, a number of Indian securities market experts feel that the time is not ripe for India to encourage securities-based crowdfunding, which typically involves small individual contributions from a large number of people.

Global experience

It is a method of raising capital outside the securities arena to generate financial support for such things as artistic endeavours, such as movies or music. The Internet plays a key role in raising such funds.

The objective was to alleviate the regulatory concerns faced by start-ups and small businesses in raising capital in relatively low dollar amounts.

The JOBS Act created a new entity — a funding portal — to allow Internet-based platforms or intermediaries to facilitate sale of securities without having to register with SEC as brokers. The US SEC on Wednesday sought public comments on a proposal to permit companies (under the JOBS Act) to offer and sell securities through crowdfunding.

INDIAN ANGLE

“It is not that regulatory gap exists in India as regards crowdfunding activity. Although specific regulations are not there concerning crowdfunding, they would be covered under collective investment schemes post the recent SEBI ordinance, “M. S. Sahoo, Secretary, Institute of Company Secretaries of India, said.

“My view is that one should not encourage crowdfunding in India. “It is best avoided given that cost of regulation will be high,” Sahoo, a former SEBI whole-time member, told Business Line here.

This will involve large number of people who contribute small amounts and so the cost of regulation would be high, he said.

Many capital market experts feel crowdfunding would be a non-starter in India. “I don’t see this happening in India at least for the next decade. People here are going to be sceptical about such concepts,” said the research head of an equity broking house, who refused to be named.

> srivats.kr@thehindu.co.in

Published on October 24, 2013
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