Financial Institutions & COVID-19 Crowdfunding

The COVID-19 pandemic created substantial economic hardship, negatively impacting the financial stability of numerous individuals and still presenting considerable financial difficulties for many. However, these difficult circumstances have also fostered a more durable and innovative financial landscape.

The rise of crowdfunding, widely recognized as a major achievement of the past ten years, combined with the urgent need for funding various COVID-19 support initiatives, presents a valuable chance for banks and other financial organizations to collaborate with crowdfunding platforms and projects. This partnership can strengthen their initiatives and broaden their reach.

COVID-19 Crowdfunding: Expanding Opportunities for Support

Before exploring how financial institutions can support crowdfunding initiatives, it’s important to recognize the significant impact this funding method has had during the pandemic. As individuals face difficult choices between essential expenses, and many experience financial hardship, crowdfunding has emerged as an innovative way for businesses, entrepreneurs, and individuals to provide COVID-19 relief to those without access to traditional financial assistance or government aid.

Here are some notable examples of successful COVID-19 crowdfunding efforts:

• Woks for Washington exemplifies community support, where two sisters launched a GoFundMe campaign to raise money for local restaurants to prepare meals for essential workers, individuals experiencing homelessness, and others in need, drawing inspiration from World Central Kitchen’s initiatives.
• Kingston Mines, a renowned Chicago blues club, utilized a crowdfunding campaign to maintain operations and cover essential costs like utilities.
• The demand for improved personal protective equipment led to crowdfunding campaigns focused on developing more effective (and even more stylish) face masks to help prevent the spread of the coronavirus.

The potential of crowdfunding during the coronavirus era is substantial, and financial institutions are well-positioned to offer their support. Here’s how they can do so.

1. Recognize Crowdfunding’s Long-Term Significance

Crowdfunding represents a significant and increasingly important funding source for businesses, individuals, and projects. Dismissing its contribution to the economy, particularly within the digital finance sector during this pandemic, would be a strategic oversight. Crowdfunding is not a passing fad; it’s a permanent fixture in the financial landscape. Numerous crowdfunding businesses and platforms are actively expanding their presence in global markets. For instance, Parpera, based in Australia, aims to compete with established platforms like GoFundMe, Kickstarter, and Indiegogo through collaborations with equity-crowdfunding platforms.

2. Consider Investing in Crowdfunding Campaigns

While seemingly counterintuitive, strategic investments in campaigns that align with a company’s objectives can be mutually beneficial, especially during times of critical need. Providing seed funding can empower entrepreneurs and support important causes.

3. Engage with Local Crowdfunding Initiatives

Financial institutions can assist small and medium-sized businesses within their communities by investing in crowdfunding campaigns, similar to those previously mentioned. Furthermore, fostering connections between financial institutions and crowdfunding platforms and campaigns can provide smaller businesses with the resources they need to navigate these challenging times.

4. Promote Sustainable Development Goals (SDG)

A recent report from the United Nations Development Program highlighted how digital finance is enabling individuals worldwide to personalize their financial management, potentially leading to greater financial stability. Financial institutions partnering with crowdfunding platforms and campaigns can contribute to these goals and support a stronger recovery from the economic impacts of the COVID-19 recession.

5. Offer Regulatory Guidance to the Industry

Several countries are refining regulations for the crowdfunding industry, such as the recent updates to crowdfunding regulations within the European Union, scheduled to take effect later this year. Established financial institutions can leverage their expertise to help define policies and standard operating procedures for crowdfunding, even amidst the ongoing challenges of the COVID-19 pandemic, ensuring fair and equitable access to funding.

Crowdfunding has evolved from a philanthropic endeavor or innovative approach to become a dependable source of economic relief during the COVID-19 pandemic, particularly when other organizations, including governments and some banks, have limited capacity to provide sufficient support. Financial institutions should contribute their extensive expertise, knowledge, and resources to these worthwhile efforts, recognizing that collective action is essential.