Compared to the United States and Europe, Southeast Asia was a little slow off the mark in adopting crowdfunding and other aspects of FinTech, maybe in part because the ripples of the 2008 financial crisis were not felt as strongly in the region.
The decimation of the traditional financial system in the west left a space for disruptive technologies to fill – there was not such an urgent need in the less badly hit economies.
However, FinTech in Southeast Asia is catching up quickly, with crowdfunding showing strong growth in recent years – reaching investment levels comparable to more mature markets.
Somewhat paradoxically, the relative lack of established financial institutions that reduced the impetus of crowdfunding in the early days means there is less of a barrier to growth, now a foothold has been secured.
Add to this the fact that SE Asia as a whole represents a flourishing market of around 655m people, with a burgeoning startup scene looking for investment, and it’s easy to see the potential for crowdfunding to take off in a big way.
But why should SE Asian startups and SMEs look to crowdfunding to grow their business, in preference to more traditional routes of funding?
Crowdfunding can often provide much faster financing compared to banks.
Crowdfunding investors can invest smaller amounts in a business, and so are often more willing to risk their investment on an attractive concept, rather than relying on a solid, fully detailed business plan.
And of course, some crowdfunding models rely on no guaranteed return on investment at all.
With crowdfunding being conducted online, potentially involving investors of many nationalities, there is a strong international aspect built in to projects that use the crowdfunding model.
This means that a project can establish a foothold in markets across the region from the moment of conception, which is especially important in an area like SE Asia, composed as it is of several independent yet closely linked markets.
Projects looking for crowdfunding investment can benefit from feedback at a very early stage of development.
If a proposal struggles to attract funding, it’s clear that the concept may need tweaking – or even abandoning. It’s a rare entrepreneur indeed who hits the target with every idea; crowdfunding provides a strong way of validating ideas before too much time and capital have been invested.
Lastly, the concept of crowdfunding is still somewhat novel, and it can provide an easy marketing hook for press, influencers, and tech-savvy customers.
The FinTech nature of the model makes it particularly suitable for projects in areas such as the Internet of Things, where publicity can snowball even before a funding campaign has been completed.
Brinc, based in Hong Kong and MENA (with demo days in Silicon Valley), a hardware IoT accelerator, tends to require the teams accepted to their program to validate the market demand for sponsored projects on Indiegogo.
So the advantages for startups and SMEs are clear. Happily, the SE Asian authorities aren’t unaware of the situation and the opportunities it offers, and various countries have adapted their regulatory stances to make the crowdfunding model equally attractive to investors.
Some platforms available in the region over the past few years, both local and international, include:
For example, in Singapore, crowdfunding platforms are covered by securities regulation which provides protection for investors, requiring the platforms to keep a capital base to ensure liquidity.
Crucially, however, changes to the law in 2016 mean that these requirements are now more closely suited to crowdfunding, recognizing that the amounts invested by individual funders are smaller, and so this capital base need not be as large.
Also, much of the red tape applied to securities has been stripped away for crowdfunding campaigns of up to S$5m in Singapore, making the whole process more agile.
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These changes have made it possible for crowdfunding platforms to provide a faster-moving service which fully protects the interests of investors, without stifling the innovative nature of startups by over-complicating the funding process.
A similar story can be told for nations across the SE Asian region.
The regional growth in FinTech in general, and crowdfunding in particular, shows no sign of slowing.
Established western platforms are opening offices in Singapore, Malaysia, Hong Kong and elsewhere to better tap into the local markets, while more and more well-backed native platforms (see bullets above) are springing up to recognize particular facets of local business.
For example, Singapore-based SME crowdfunder Kapital Boost launched an Islamic crowdfunding service endorsed by the Financial Shariah Advisory Council, in what is only one of many examples of how the adaptability of the crowdfunding model can be channeled in innovative new ways.
But the future of general-purpose SE Asian crowdfunding in the medium term looks rosy indeed. Regional operations are now beginning to cut out the middle man, linking SE Asian initiators directly with their local investors.
With the resulting companies often exploiting western markets as well as Asian ones, and plowing profits back into the region, it’s not hard to see this as a virtuous cycle that could end with SE Asia becoming the global hub for the new financial industry.