Classification of crowd Funding

Crowd funding is classified into four distinct categories. Based on the category money is lent for different causes such as charity, consumer lending, creative support and business growth.

Charity and social investment

Charity and social investment oriented Crowd funding is based on charity. Social investment’s command 15 % of market share among the categories of crowd funding Charity oriented crowd funding platform is based on small donations. Normally money is lent on 0% interest to loans with social and non lucrative projects. Here loan is normally given for social cause.

The main player in this category is KIVA.org, an NGO that connects contributors with micro entrepreneurs in developing countries. KIVA was launched in 2005, has an exposure to USD 200.000.000 and counts more than 500.000 contributors. KIVA finances a project every 20 seconds. It finances approximately 1900 micro projects per week .

Consumer lending

Consumer lending garners a chunk of 80 % market share in crowd funding. Consumer lending platforms are based on the concept of loans, which are issued directly between individuals. In other words it is termed as Peer to Peer lending with no bank intermediates. The inherent advantage of consumer lending is the lender gives the money for higher interest than he gets for the deposit in a bank. Usually the rate of interest ranges from 8% to 30 % depending on the risk taken. The borrowers borrow money at a lower interest than they get at the bank.

Borrowers are selected by the platform and the lender community does proper validation. Lending depends on credit history of the borrower. If track record on his borrowing is good he gets a better interest rate.

Zopa.com, which was launched in 2005, is one of the leading players in this category. Zopa has 400.000 members. Zopa has business exposure worth more than 140 million dollars.

The main players in this crowd-funding category are from United States and Germany.

Creative Support

Creative support has around 5% of market share among crowd funding platforms. The creative support is based on the idea to help and support creative projects. Contributors finance music bands, comics and movies. They get remunerated in participative mode by discount on product purchased. People contribute for creative support because they want to support the project and don’t really expect to be paid. Kick starter.com is the leading player in creative support category of crowd lending.

United states and Belgian companies dominate in this category.

Business Growth

Business Growth based Crowd funding platforms are based on investment made to finance and support growth. Contributors lend money to entrepreneurs and get paid with a fixed interest rate or on a percentage of turn over during a certain period. Crowd funding based on business Growth has less than 1 % of market share. It is now possible to invest in start up companies as well. People who invest money in this type of funding mainly do it for economical and social welfare. Owing to legal constraints very few platforms exist in this category.