This is a new work that I recently sended to the Ideas for Cuba contest. This is the third of a series of 5 articles.
2-Encourage private sector access to financing through modern alternatives such as crowdfunding and crowdlending
Until relatively recently in the world, any entrepreneur who wanted to take a personal or business project forward, and did not have the money to do so, opted for a few possibilities: sell possessions, ask for a loan from a bank or help from relatives and friends. However, the arrival of the Internet has opened the possibility to new alternatives such as crowdfunding and crowdlending.
Crowdfunding allows organizations and small or medium enterprises to finance themselves directly by a large and diverse group of people, the “crowd”, without having to ask for money from a bank or any other traditional financial institution.
The crowdinvesting model is the most particular case of crowdfunding and consists of the mass financing of projects through participation in the capital of the promoting company through investments through the Internet. Thus, the contribution received is treated as a contribution of capital and the contributors become partners or shareholders of the company promoting the project, with the right to participate, under legal and statutory conditions, in the company’s benefits or to receive, from another way, part of the project’s profits.
Contemporary economies essentially base their growth and, in fact, the viability of their own functioning on the availability and access to credit on reasonable terms. Given this intense structural dependence, the weak access to financing in the particular case of Cuba is perceived as a lacerating cause of the critical situation of the economy and, at the same time, as a trigger for the worsening of its consequences. Through crowdfunding, Cuban entrepreneurs could publish their business projects online and receive investments from people all over the world, enabling the start-up of the business initiatives of our people.
The success or failure of all projects that launch crowdfunding campaigns is based on attracting interested parties, members of another related business, or activating the components of certain investment mutual funds. The role of the platforms is usually secondary, and it is the promoter, who has to do the main work of mobilizing a community of investors. The Cuban entrepreneurs would be aware of the presentation of viable projects and would define the percentage of participation of investors in the benefits with the notion that, the higher this figure is, the greater the resources would be captured by interested parties.
All forms of crowdfunding respond to a common basic relational structure that involves the minimum participation of three subjects: the project promoter, the contributors to the project and the platform manager.
Nowadays, there are more and more crowdfunding websites that act as platform managers and more projects financed by this way, something that represents a new revolution in all the sectors in which we move. Cuba would have these platforms endogenously through the availability of international sites and the creation of ours by national entrepreneurs. The role of the State would be to create the regulatory framework that guarantees the participation rights of investors and the authorization of the start-up of projects.
In addition, investing online in small and medium-sized Cuban businesses is a way to actively support the growth of the economy of the contributor’s country. The investor would receive monthly interest and amortization of all his investments directly in his bank account. In this way, ties of collaboration between Cuba and the international community would be built, which would be a strong factor in diplomatic relations.
Crowdlending works in another way: the investor loans money to a company in exchange for an interest rate. Through crowdlending, companies obtain financing directly from private investors through loans. Its usefulness lies in the potentialization of already established Cuban businesses, but they could use capital for investments aimed at their growth.
With crowdlending people lend small amounts of money over the Internet to a company in exchange for a financial return stipulated in a loan contract. The advantages for the companies are to obtain the financing that the banks do not grant, the diversification of the sources of credit, or also the obtaining of notoriety for the fact of using the crowdlending. For small lenders the advantages are greater profitability, transparency about the use that is given to your money and the possibility of generating a positive impact with it, of which you have a direct notion.
Crowdlending platforms would offer the necessary infrastructure to companies to get online financing by putting them in contact with private investors who are interested in obtaining an interest with their investment. The loans for companies are more flexible, fast and comfortable: the process would be managed through the Internet without having to go to a bank office.
Crowdfunding and crowdlending, in reality, in their current configuration, are the result of the convergence of several factors. Along with the economic, a social factor and a technological factor have been agglomerated in the conception and development of the modalities of both processes. Indeed, crowdfunding and crowdlending, in their various forms, are another manifestation of the social movements of community involvement and collective action.
The creation of social communities and the use of the advantages of collective action would be shown in numerous initiatives. But, in fact, it has been the technological lever that would make possible the materialization of these proposals, in all its areas. The possibilities of interaction, communication and joint action offered by the Internet have created an ideal environment for the development of these projects.
This technological infrastructure makes access to a broad group of users viable under conditions of direct and multilateral interaction, low cost and territorial and subjective scope that are absolutely unknown and unattainable through traditional financing formulas for capturing public savings. Therefore, technology has triggered the multiplier and efficiency effect of the economic principle underlying mass financing: the distribution of risk.
Indeed, given the reluctance of financial institutions to concentrate their investments on specific projects and thus assume the risks thereof, mass financing is based on distributing the risk among a large number of contributors who contribute relatively small amounts of resources, which allows them to control and limit the risk of loss, but, at the same time, ensure that the sum of all contributions reaches (and very often exceeds) enough to support the initiative financed. With the same economic function that structures the financial markets, crowdfunding and crowdlending platforms would act as direct mechanisms of efficient allocation of micro-savings to investment, tending, however, to the redistribution of resources and under a principle of cooperation.
Crowdfunding and crowdlending create value because they manage to overcome the simple functional emulation of existing financing models and offer other functions and strategic tools. Through an appropriate technological design, crowdfunding and crowdlending are not only a model for access to mass financing, but also take advantage of the creation of a “community” environment of interaction to reinforce the cycle of innovation, loyalty and decision making. Thus, both acquire a profile of their own that makes them detach from a mere electronic replication of the traditional financing channels that would lead to the disappearance as soon as they were activated and confidence in the institutional system of the financing market arose in Cuba.
The different models of crowdfunding and crowdlending facilitate the identification of new ideas, the testing of pilot projects, market research for the launch of new products, feedback of innovation processes and improvement based on opinions and recommendations from customers. , loyalty schemes, customer management, personalization of products and advertising campaigns, and, of course, fundraising. In short, both manage to promote the emergence of a collective decision making environment on the technical and operational infrastructure offered by the Internet.
Crowdfunding and crowdlending would be born in our country as a response to a context of difficult and limited access to funding to become an exciting task on how we can and how we want to rethink our economic system, making possible collective, participatory and collaborative formulas that encourage us to dream of another way of understanding our society.
Once again, technology would not only act as a powerful facilitator of known functions, activities and structures, but it would envision a great transforming force to drive existing phenomena towards unknown scenarios that add value, represent new challenges and force us to reconsider our principles, our rules and our conception of the model model of private sector initiatives in Cuban society.