In a plea for crowdfunding, the European Crowdfunding Network has appealed to the European institutions to create a legal framework in the European Union that promotes crowdfunding.
While the strategy for economic recovery has focused on fiscal policy and the banking system, the brunt of the financial burden is placed on small businesses and entrepreneurs. These groups are left without funding for their businesses, without the security of a bank loan, and without access to credit lines from the financial services industry.
The final document titled "A Framework for crowdfunding in Europe" was published on October 29th on the website of the lobby association for crowdfunding in Europe. Yet, "the 23 million small and medium sized enterprises (SMEs) in Europe represent 99% of businesses," as the authors of this 40 page plea Kristof De Buysere, Oliver Gajda, Ronald Kleverlaan and Dan Marom argue, before describing the benefits of crowdfunding in this context.
Better than a handful of financial institutions: the crowd
According to the authors, "crowd funding" has the potential to create a more resilient European market, as it provides a diversity of funding opportunities and enables prices to no longer be solely determined by a "handful of financial institutions." According to the authors, it will strengthen financial stability and presents an alternative to the strategy that has been used during the current financial crisis:
This represents a significant alternative to money creation for economic crisis management and also reduces the risk of over inflation caused by artificial inflows of investment into the economy.
However for these new financial reforms to be able to support the economy, the report calls for a European legal framework that promotes this sector and thus removes the barriers that hinder its development while addressing the challenges it faces: fighting fraud, risk management and information transparency. The authors describe a number of such proposals in their report. For a European legal crowdfunding framework [caption id="attachment_3895" align="alignleft" width="250"]
Download the paper by clicking on the picture[/caption] In regards to the legislative branch, the report calls for a European legal framework that provides funding for projects under 5 million Euros, which are currently excluded from a pan -European legal framework. This would reduce the costs of compliance with national legislation and create a legal framework for participatory fundraising across borders. The paper also recommends that crowdfunding platforms, should be freed from the obligation to become a licensed credit institution. "The crowdfunding platforms do not use the funds to pursue money creating activities, yet by doing this, they face the highest regulatory burden and the highest cost, either by having to obtain an expensive license as credit institution, or by having to cooperate with a licensed third party, as possible under the e-Money Directives, to accept the money from investors." Furthermore, to reduce costs without worsening investor protection, the authors demand a license exemption as long as the funds raised are held separately from the platforms' accounts. Ambitiously, the paper even mentions the idea of creating European crowdfunding directive... On a more general note, the authors defend the three "pillars" for creating a european crowdfunding framework: regulation that is in favor of the crowdfunding sector, creation of awareness among stakeholders and decision makers for the opportunities of crowdfunding, and financial support for research on the impact of new forms of funding. Towards a European crowdfunding lobby The initiators of this approach are attempting to voice their demands to the highest ranks of the European Union. "The paper is being distributed to European Commission officials today" Martin Bryant reports on The Next Web. According to Gadja Oliver, one of the major contributors to the document, the publication is "only a first call to people in Brussels to even start a discourse on crowdfunding." He will meet with the European Commission in November. In France, the association Finpart has already initiated something similar by publishing a white paper (pdf) with proposals on how to improve the French legal system. Are these ideas being heard? In any case, the subject cannot be avoided in the future:
While not every small business is going to be a game changer, we must provide the infrastructure and access to funding to enable SMEs to succeed. To eliminate the funding gap for SMEs, we must look to the future and innovate.
Francesca Pick & Stanislas Jourdan Photo credits:
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