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Why crowdfunding is the answer to dilemma of SMEs

In the post-Covid era, the importance of SMEs cannot be undermined as more and more businesses strive to find a foothold

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Over the years, crowdfunding has evolved into a truly modern and progressive way of supporting the small and medium enterprises. In the post-Covid era, their importance cannot be undermined as more and more businesses strive to find a foothold. Not only has crowdsourcing proven to be more efficient than traditional fundraising, the exchange of ideas that happens in the process also helps shape, and reshape, a business. Which is why the UAE government’s nod of approval for the use of crowdfunding to help small and medium enterprises access funds is a move that needs to be welcomed. For one, this marks a departure from traditional methods employed to support SMEs, it will also stand to broaden the horizons and compel them to tap into alternatives to grow and expand the business further.

At its heart, crowdfunding is a simple but powerful idea that revolves around raising money to finance projects from a large number of people. With varied stakeholders, this model facilitates greater conversations. Moreover, when entrepreneurs take their ideas and plans directly to the public to seek funds, it cuts down on the waiting period, which could be rather long if a business takes the traditional route to seeking financial support. So, why has crowdfunding assumed an important role in the conversations revolving around SMEs.

According to data provided by Khalifa Fund, 50-70 per cent of the SMEs’ applications for funding are turned down by conventional banks. On the other hand, loans to SMEs make for 4 per cent of the outstanding bank credit, as opposed to the Mena average of 9.3 per cent. In the light of these circumstances, the government’s vote of confidence to the crowdfunding model offers a ray of hope, especially now that social media has opened various channels to make the prospect more seamless.

The beneficiaries of the new law on crowdfunding will be the blockchain businesses, NFTs, art etc. It will also allow cooperatives to benefit from the advanced services provided by the UAE’s financial markets in terms of transparency and flexibility. In the UAE alone, a number of platforms like Aflamnah, Eureeca, Humming Crowd Realty, Durise, Beehive, Yomken and Zoomaal have made crowdfunding easier and more seamless. And while it remains to be seen how this will impact SMEs, the good news is that it leads to a growth in investment.

In the real estate sector, for instance, the investors can hope for growth with annual returns of 12-14 per cent. And with the kind of transparency that the crowdfunding model offers, this is a step that needs to be lauded.