Micro Finance vs. Crowd Funding

In modern history, word ‘micro finance’ became popular in 1970s; while ‘crowd funding’ evolved around 2000s. Without naming ‘micro finance’, similar finance patterns were very common in various economies. Poor people and small entrepreneurs were used to borrow money since centuries from private lenders and informal sectors. Such borrowing will have variety of riders of saving, incentive to early return, sharing profit rather than interest, assured return from business or through interest, advance interest and so on. Micro Finance is mechanism where poor or small business get money from a source on rent. Because, in lending creditor will assess credit worthiness of borrower, poor and small business lack credit worthiness, the lender will charge higher rent. Another reason of higher rent is small ticket size. Crowd funding is some what opposite to micro finance. Poor and small business is receiver in Micro Finance while they are source to crowd funding. Books and publications were used to collect small ticket size from subscribers to fund the project. Both the instrument became more prominent after, researchers started to work on it and practitioners started to implement. With the support of development institutes like World Bank, micro finance gain momentum. Some of the micro finance projects like Grameen Bank were well recognized.  Researchers and practitioners experimented extensively and world wide several models are emerged. Both the concept  inherently work on principle of cooperation and hence organization like cooperatives, mutual and it’s derivatives adopted those concept in it’s business models. Investors and corporate find interest in micro finance and crowd funding as a business or as financing or investment tool. Over a period, the volume of business has exponentially grown. Unregulated promotion lead to exploitation and fraud. By late, the governments started to intervene micro finance and crowd funding. Lot of local, national, regional, continental and international organizations cropped up. Rather it became fashion now to call development agency while engaging to work in micro finance and crowd funding. These engagement may be research, consultancy, training, funding, investing, financing and so forth. To optimize use of resources and  channelize those resources for use of intended and targeted people, systematic research is the need of time. But more important is ‘just management of resources’ by regulators to promote these instruments for larger benefits. The current regulations are by and large restrictive rather than encouraging. The impact of these instrument should not be measured by numbers, but by its influence on reducing poverty and inequality.

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