Equity Crowdfunding: A Funding Alternative for Pakistani Start-ups and MSMEs

The term ‘crowdfunding’ corresponds to the idea of soliciting small amounts of funding from an expanded pool of eligible investors, often including the general public. This funding methodology involves greater use of technology — the project/idea that needs to be funded is publicised over a digital platform, tapping a wide and diverse range of qualifying internet users to gain financial support. Over the last decade, advances in technology and the concept of a ‘shared economy’ that emerged in the aftermath of the 2008 financial crisis have revolutionised the global financial landscape, largely to address difficulties faced by entrepreneurs, early-stage enterprises, and micro, small and medium enterprises (MSMEs) in raising growth capital.

Approximately 70% of all MSMEs in emerging markets lack access to credit. The situation is exacerbated by stringent collateral requirements, strict financing covenants, and extensive lending conditions and documentation requirements, hence restricting enterprises’ access to formal lending channels. Access to formal financial credit is even more difficult for start-ups with no previous history of sustained cashflows or integrity-related parameters, including reports from credit information bureaus. In this context, using digital infrastructure to channel funds from retail and institutional investors to provide liquidity and capital support to emerging entities, especially MSMEs and start-ups, can unlock significant economic advantages.

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