CROWDFUNDING, SMES AND THE FIGHT AGAINST POVERTY (Lorenzo Tordelli, IILA)

CROWDFUNDING, SMES AND THE FIGHT AGAINST POVERTY (Lorenzo Tordelli, IILA)

Crowdfunding is a way people have to provide small amounts of money from long distances and different contexts. The Inter-American Development Bank explains that crowdfunding “is whatever kind of  fundraising that is the result of the need of financial support spread through an open call to a group of people”. Thanks to new communication technologies, from 2009 crowdfunding has rapidly opened to different new sectors. From President Obama’s political campaign, to the financing of innovative business projects and to the co-financing with the support of some social project. The first Italian platform of crowdfunding, that will be able to finance autonomously international cooperation projects, has been launched in Florence over the past few months.

Donaction” is the name of the platform, a simple website (www.donaction.org) where anyone may access, look into different cooperation projects of the various geographic areas of the world and choose the one eligible to their little donation. It constitutes a simple online tool that allows donors to be put in contact with beneficiaries and that promotes at the same time transparency, supervision over the use of resources and expertise for the best cooperation projects.

The platform is also an innovative tool that provides clarity in the world of Cooperation and NGOs, where businesses and private citizens are finding it difficult to find the right beneficiary for their donations.

Nevertheless, crowdfunding gives much more opportunities other than financing Cooperation projects. A platform like “Donaction” may easily become a key instrument to facilitate investments and the development of Small and Medium Enterprises (SMEs), fostering the fight against poverty, especially in the actual context of Latin America.

Indeed, the countries of Latin America present some features that make them potentially suitable for this new form of fundraising: from 2000, up until now, they have experienced increasing growth rates, they are rich of tangible and intangible resources and they are, doubtless, countries  that draw investments and  where companies, especially European companies, may establish productive collaborations.

It is a context where poverty still constitutes a problem, since a big part of the population has access neither to credit nor to the market. Crowdfunding platforms such as Donaction may step into this crucial issue for the future of Latin American countries.

An important challenge of all Latin American governments is to boost the creation of sustainable economic opportunities for the beneficiaries of the Programme for the fight against poverty of Conditional Cash Transfer (CCT).

Crowdfunding allows the financing of specific projects, giving access to credit to those population that wouldn’t have access otherwise, and allows to socially invest in places, especially rural areas, that no other public institution could reach so efficiently, transparently and creating a direct connection between small manufacturers and external market.

To achieve this objective, the mechanism is simple: the small amounts of money need to be transformed from donors into stocks that will be paid back once the products are sold on the market. For example, instead of financing with donations the project of a NGO engaged for the improvement of life conditions of a community of coffee producers of El Salvador, thanks to a crowdfunding platform, stocks will be issued to finance the NGO. With the disposal of this resources, the NGO will be able to organise better its production of coffee, from the payment of the sowing to the launch on the market of organic coffee, produced with high quality standards.

Once the coffee is sold, thanks to the direct connection, with such a guarantee, stocks previously issued are paid back. This is the classic procedure employed for the funding of large projects that, through crowdfunding may become something more flexible and able to finance smaller contexts, that would not have access to credit otherwise.

In Latin America, interest rates are higher that European ones at the moment. In Europe, interest rates are very low and investments barely profitable. On the other hand, because of information and communication problems between Europe and Latin America, Europeans are finding it difficult to invest in Latin American contexts, especially in small contexts, that could be extremely profitable.

Thanks to crowdfunding and to various profit or non-profit organisations that promote projects in situ, people are given the opportunity and the knowledge to invest in little cooperatives of manufacturers and in a real economy that produces goods, creates development and wellbeing.

Crowdfunding, if properly used, also with the collaboration of local organisations, is a great opportunity for social contexts and to promote development, productive cooperation and SMEs.

Going back to Florence, there is a popular proverb that says “Chi del suo dona, Dio gli ridona!”, that is “Who gives something of their own, will be given back from God”.

Crowdfunding is useful to invest in the social sector and in the poor and is a tool that puts into practice this Tuscan proverb.

Lorenzo Tordelli: economist, over the past 12 years has worked on cooperation projects between Europe and Latin America. He has promoted programmes to foster productive inclusion of Latin American manufacturers through the creation of direct connections between European SMEs  and regional cooperatives. At the moment he is working for the EU Programme EUROsociAL, coordinating technical assistance activities for Latin American governments in the field of employment and social policies, and helping in the elaboration of plans and reforms that would improve the level of social cohesion.