Chapter 9 The Investment Model of Crowdfunding for MSME (Micro, Small and Medium Enterprises) in India

Purpose Crowdfunding though existent, is still at the nascent stage in India being limited to charity and reward-based funding of creative and social projects by the crowd. The Indian regulatory authorities are in the process of formulating policies to encourage and monitor crowdfunding platforms that are based on financial return. The Indian Micro, Small and Medium Enterprises (MSME) sector in particular is facing financing problems, and crowdfunding could be a viable alternative to traditional sources of finance. In this context, the study attempts to suggest an operational framework for crowdfunding in India with special reference to the MSME sector in terms of eligibility norms, rules for investor protection, sustaining market integrity, providing a supportive infrastructure and defining the role of online crowdfunding platforms. Methodology/approach This is a qualitative study conducted through personal interviews based on unstructured questions. The Directors or Chief Finance Officers of MSME firms and Senior Officials (with minimum work experience of 15 years) in the SME divisions of banks (private and public) located in the National Capital Region, were interviewed to identify the perspectives on the research issues of the chapter. The sampling criterion allowed us to incorporate both investors’ and investees’ concerns regarding the research issues. Research limitations These are the inherent nature of qualitative analysis, interviewees’ individual understanding of the subject and sample size. Practical implications The study will contribute to the vital discussion prior to the government’s decision on role of equity and debt-based crowdfunding in India in the future. Social implications The study will shed light on the fact that Indian society needs to be well informed about novel investment options such as crowdfunding. The Indian MSME sector can also discuss the opportunities offered by crowdfunding with the government to reduce their problem of access to finance. Originality/value The scope of crowdfunding in the Indian MSME sector has not been thoroughly researched, as the phenomenon is new in India. The study highlights how the use of crowdfunding by micro, small and medium firms has the potential to boost manufacturing- and service-related business activities to further increase the national income.