New financial instruments for ESF - Crowdfunding

Published on 18 December 2019
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ESF crowfunding

The European Commission's Directorate-General for Employment, Social Affairs & Inclusion (DG EMPL) and the European Investment Bank are looking into the crowdfunding sector as a suitable area to develop financial instruments.

During FI Campus 2019, a specific breakout session focused on raising awareness among ESIF practitioners about the opportunities to support crowdfunding and, in turn, initiatives that have a local impact and are backed by engaged citizens. Crowdfunding can be described as ‘an open call for the collecting of resources (funds, money, tangible goods, time) from the population at large through an internet platform’. In return for their contributions, the crowd can receive a number of tangible or intangible benefits, depending on the type of crowdfunding.

Among the few experiences already in course of implementation, MikroCrowd, a pioneering platform deployed by Investitionsbank Berlin (IBB) which was presented to participants during FI Campus 2019. The experience of IBB with this platform has demonstrated how managing authorities can use ESIF resources to stimulate follow-up investments (microloans in this specific case) for start-ups.

The rationale behind the interest in crowdfunding lies in the inherent similarities of crowdfunding and ESF financial instruments: they both serve types of organisations, sectors and groups that are usually neglected by traditional finance. By leveraging the so-called ‘wisdom of the crowd’, crowdfunding is the ideal testbed for innovative projects and ensures that only projects which the financing crowd deems valuable are eventually funded. Furthermore, crowdfunding represents an important asset for harnessing private resources (leveraging) to support projects with social value and relevance.

Financial instruments, also in combination with grants, can be beneficial both to:

- crowdfunded projects, by injecting liquidity in the projects by means of loans or equity, lowering their costs related to the crowdfunding campaigns and funding non-financial services (trainings, business skills, communication and marketing campaigns) that are often crucial for such small-scaled initiatives to break through; and

- crowdfunding platforms, helping them to overcome usual problems of liquidity and, in some cases, trust, and prompting them to reach out to projects that meet the operational programme’s criteria.

In this respect, a recently launched study under the ESF workstream of fi-compass is exploring the feasibility and the opportunities for ESIF – and particularly ESF – co-funded financial instruments to support crowdfunding platforms and projects that run crowdfunding campaigns. The study is gathering the already existing knowledge of the crowdfunding market, current experiences (including ESIF grants – crowdfunding combinations) and is conceiving new ideas for future support of the crowdfunding sector via ESF and ESIF resources.

The fi-compass study on crowdfunding, which will be available on the first quarter of 2020, will be introduced and considered in future fi-compass workshops.