Posted on 28/04/2014

European Commission to promote crowdfunding sector

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The European Commission aims to work with investment bodies and national regulators in an attempt to get lasting finance for small and medium enterprises (SMEs). This comes as European companies who received crowdfunding money has increased significantly, with over half a million projects raising over €1 billion.

Higher yields
Crowdfunding, otherwise known as peer-to-peer lending, has recently attracted institutional investors due to the fixed-rate investments which return higher, short-term yields of six to 10 per cent. This has spurred policymakers to implement changes in favour of peer-to-peer funding. For instance, the EU Internal Market and Services Commissioner, Michel Barnier, has spoken of the need to ‘diversify financing sources’ for SMEs, and stated that the measures spoken about would ‘contribute to improving the ability of European capital markets to channel funds to our long-term needs’.

Alternative source of finance
Crowdfunding became a popular funding method in the wake of the economic crisis, due to SMEs finding it increasingly difficult to receive conventional bank loans. These challenges still exist, according to the EC Vice President for Industry and Entrepreneurship, Antonio Tajani. Stating that SMEs were ‘still finding it challenging to obtain financing, particularly in periphery economies’, he said: “The initiatives presented today aim at unlocking additional funding resources to the real economy and all have a common goal: to promote the single market by creating the best conditions for growth and competitiveness in Europe."

EU-wide regulation?
Though this is a positive first step to a pan-European crowdfunding platform, there are many hurdles still to overcome. The risk of fraud is high, and a large-scale scandal could cause a lack of trust with investors, meaning a fall in the sector’s growth. Moreover, there are differing national rules, along with different payment systems, which make the realisation of continent-wide regulation a relatively long way off.

However, changes are certainly on the way, as Jeff Lynn, the chief executive and co-founder of UK-based equity crowdfunding platform, Seedrs, affirms: “In the digital age, when it comes to investing, we see national boundaries as artificial. There is absolutely no reason why an Estonian investor shouldn't be able to invest in a Spanish business.”