The online crowdsourcing of ideas and capital has transformed business tasks such as innovation, technical problem solving and product design. It has also revolutionized startup financing and scaled peer-to-peer lending. What was once in the responsibility of a few experts is now distributed to professional and amateur alike via tapping the power of the crowd.
But in the world of collaborative financing, donation-based platforms are now raising some interesting and crucial questions, especially when such funds are directed to finance social projects, or to produce quasi-public goods for communities.
Changing the Model of Giving
We have witnessed the global success of the peer-to-peer lending platform Kiva, which in the ten years since its birth has loaned more than US$715 million to small borrowers in 85 countries, achieving a loan repayment rate of 98.72 percent. Kiva is a vehicle for microfinance: loans of as little as $25 to entrepreneurs mainly in developing countries, underpinned by the infrastructure of PayPal.
More recently, platforms such as Startsomegood and more locally, the Australian-grown platform Chuffed have emerged.
Chuffed recently announced it had enabled the raising of more than $A4 million in over 1000 social campaigns. And it did so in only 22 months. Interestingly, and in a model similar to Kickstarter, donations can be rewarded with “perks” associated with the campaign, depending upon the amount donated. This is no longer about an online version of passing the proverbial hat around—but a serious mechanism that is changing the model of giving and the science of philanthropy. Even the Vanuatu High Commission listed campaigns on Chuffed to raise funds for disaster relief in the wake of Cyclone Pam earlier this year.
So are we approaching a tipping point where money increasingly comes from crowdfunding than from traditional institutions? Researcher David Brabham cautions that the power of crowds “will never be a replacement for traditional philanthropic organizations, which bring specialist expertise and experience“. While that might be true, they will see themselves forced to find a place in this new model of giving that is far more distributed, decentralized, and transparent.
And what about the public goods that some of these campaigns produce? Crowdfunding could impact the role governments will play in the future—especially those at the local level and in urban contexts.
‘Public Entrepreneurship’
Stanford-based researcher Rodrigo Davies recently published a paper on the development and potential of civic crowdfunding and crowd-based community finance. He refers to civic crowdfunding as the “the use of crowdfunding for projects that produce community or quasi-public assets,” and calls it the “digital” version of what Nobel Prize winner Elinor Ostrom described as “public entrepreneurship.”
