Crowdfund: Three Types

The word ‘Crowdfunding’ is derived from two words: crowd and funding. As the name implies ‘Crowdfunding’ means directly funding a project or a venture or any other valid financing requirement by raising small amounts of money from a crowd. It is an alternative financing system and, in this system unlike traditional financing methods a sizable number of people directly invest or lend money to borrowers. Modern-day crowdfunding works based on online platforms such as forms, websites, chatgroups and social media groups. In these platforms fundraisers post their ideas or project details, or fund requirement details and investors (aka. funders) invest or lend their money directly in the ideas or projects. Since 2010s crowdfund has been gaining popularity amongst both funders and fundraisers because of its ease, simplicity, and lower cost of financing in comparison to traditional sources of financing.

Crowdfund is basically of three types: debt-based crowdfunding, equity crowdfund, and donation-based crowdfund. In debt-based crowdfunding, funders lend money directly to fundraisers on peer to peer (P2P) basis in exchange of interest and loan principal for a certain period. In equity crowdfunding, funders generally invest in new venture in exchange of either a perk or ownership share or both. Last of the three, in donation-based crowdfunding, funders donate money straight to fundraiser on different humanitarian causes. The global market size of crowdfunding was $84 billion in 2018 and is expected to be more than $120 billion by 2022 at a CAGR rate of 16%. Though crowdfunding is a proven and familiar concept in developed worlds, it is very new for Bangladesh. As per a report published by World Bank in 2013, crowdfunding has immense potential in emerging markets like Bangladesh.

Till now only a handful number of crowdfunding platforms emerged in Bangladesh but none of them was successful to graduate from the development stage and enter growth stage of business cycle. Furthermore, despite of tremendous popularity of Islamic-Shariah-based financing, there is no such crowdfunding platform in the country. Considering the market gap, and market perspective, bdcrowdfund has been formed solely on the basis of Islamic-Shariah-based financing principal.