Based on the China Financial Stability Report of People’s Bank of China (2014), crowdfunding is defined as the “model of small amount funding for projects or business activities that were initiated by sponsors via a network with certain returns to investors” ( Wang et al., 2018). The efforts of individual or groups of entrepreneurs who optimize the allocation of social resources by raising funds to support their ventures in the form of donation, reward, exchange or voting rights from a large number of crowdfunding sources using the internet without standard financial intermediaries ( Schwienbacher and Larralde, 2010 Mollick, 2014). The founders of crowdfunding noticed the financing problems facing MSMEs and unlocked sources of capital which can enable the potential for dynamic MSMEs to grow.Īccording to International Organization of Securities Commissions (2014):Ĭrowdfunding generally refers to obtaining funds of a small amount from many individuals or institutions via online platforms, which are used to provide funding for a certain project, business or personal loans, or other needs. For example, InnoFund, the largest government program supporting corporate RandD activities of small and medium technology-based enterprises (SMTEs) in China, decline to fund high-risk ventures because they prefer state-backed companies ( Guo et al., 2014). Governing funding for MSMEs is limited and favors state-owned enterprises, while private MSMEs face strict eligibility requirements. In China, MSMEs face severe financing constraints that limit their growth and development ( Tang, 2011). Alternative online financing such as crowdfunding, has proliferated in many countries and begun to fill this gap by offering a diversified range of financing services in areas where conventional financial channels cannot effectively operate or have been too slow to operate. However, there remains a large unfilled gap when funding these groups. Policymakers have implemented different initiatives and reforms to broaden the access to capital creating secondary exchanges targeted at MSMEs. Based on the study of World Bank, 2013 Report ( Abraham and Schmukler, 2017), there is a high proportion of MSMEs needing financial backing from financial institutions: MSMEs financing problem hampers the establishment of smaller enterprises and for second round investment needed to grow, expand and launch new operations that will provide the overall growth of the economy and employment of a country. They are less likely to have formal bank loans or other lines of credit because they tend to be young, informal and operate in unfamiliar business sectors which discourage the conventional financial institution from serving them ( Bruton et al., 2014). However, according to World Bank Research and Policy Report ( Abraham and Schmukler, 2017), despite MSMEs significant contributions to the economy, access to financing and funding are relatively limited compared to large enterprises. Micro, small and medium enterprises (MSMEs) are the main contributors to employment worldwide and are considered the backbone of economic activity. The full terms of this licence may be seen at Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Published in Asia Pacific Journal of Innovation and Entrepreneurship. Copyright © 2018, Zaiyu Huang, Candy Lim Chiu, Sha Mo and Rob Marjerison.
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