Shravan Charya, Founder and CEO, SocioLadder details on the risk of fraud with crowdfunding, how funds are raised for the same cause on various platforms and how regulations by the Government keep a check on it
In today’s scenario, the crowdfunding sector has evolved as a big business globally. Even though the platforms focus on raising funds through donations, none of them prioritise their focus on the outcome success (impact assessment) or provide transparency on the utilisation of the donated funds (utilisation transparency). Most platforms are devoid of clarity about the veracity of the benefactor, the cause fulfilment of the donation and to what extent the impact purpose was fulfilled. There is rarely, if at all, any proof of non-duplicitous use of the money collected. As a result, for instance, one individual can raise funds on various platforms for the same cause, and get away with it. Thus, with most well-known crowdfunding platforms, there is an inherent risk of fraud and / or misuse of funds because there is no transparent trail of outcome and impact results, until the last mile. Yes they all tell you who benefits in the case of individual causes, but not the success of the impact or outcome.
In the crowdfunding sector, beyond the fundraising episode, what happens to the money is between the donor and the fundraiser. While the funds collected would go to the individual at the face of the crowdfunding campaign, the impact and outcome of the donation keeps the donor guessing / clueless. The crowdfunding industry in India alone is worth several millions of dollars, even if it is hard to quantify the business to a near-exact number. When there is a lot of money being transacted without adequate transparency, the need for outcome measurement and impact visibility becomes that much more urgent.
The other glaring issue is that most of these platforms regularly target the same set of donors. So, there is a sort of a cyclical monotony in this act of crowdfunding. This set of donors can be broadened by beginning to show transparency and focussing on outcomes. A more sustainable option would be to take the narrative away from raising funds, which is only a component of the crowdfunding and charitable fundraising activity. When dealing with individual cases one never knows whether the impact is verified and relayed back to the donors.
Raising funds is of course a major part of donor-led platforms and remains the most visible part of the appeals and campaigns. But a significant amount of effort and focus needs to point towards the outcomes, impact and beneficiary level transparency.
The crowdfunding sector has been unregulated until now, and this will change soon. The Reserve Bank of India has come up with recent guidelines to control or regulate the payment aggregator business, which is what crowdfunding platforms operate on. The guidelines introduced new capital adequacy norms for these aggregators, but the onus is misplaced on capital adequacy rather than on transparency adequacy. In other words, a company that has more capital in its balance sheet can continue doing crowdfunding business rather than those that showcase transparency adequacy. Smaller platforms that do not and cannot comply with these norms are likely to go out of business. The RBI’s move is laudable when it applies to e-commerce sector, where the smaller capital inadequate marketplaces need urgent regulation to uphold consumer rights, but may not apply to crowdfunding businesses en masse.
We wish for the Ministry of Social Welfare to introduce new policy guidelines to introduce transparency norms to control and regulate the philanthropic and charitable crowdfunding sector sooner. An impact visibility led platform shall bring about a great transformation to the charity sector.