Be careful what you wish for in crowdfunding
Over the last decade bankers have taken over from civil servants and public transport employees as the ones to complain about. Yours truly is also guilty and I still meet bankers who do not like to talk about their profession because they are annoyed about the bashing. Nobody is perfect but haven’t we all been too harsh on bankers?
This question popped up last week when I read about crowdfunding developments. This relatively new form of funding is growing quickly. I see at least three obvious reasons for this. First, regular banks are reluctant to fund SMEs. Regulatory requirements, ROI and risk profiles of their potential clients are some reasons for that. Second, there is a lot of liquidity in the market and it is hard to make proper investments. Third and last, various platforms, with easy accessible IT solutions, facilitate investors finding those who need funds. Why my plea to go easier on the bankers?
With crowdfunding platforms building a track record, issues are becoming very visible. There are two very prominent problems. Many SMEs using crowdfunding facilitate the payment of extremely high interests, the term loan sharks already came up. The other prominent problem is that the credit risk process in crowdfunding is often very weak. This results in the funding of unstable businesses and weak plans, ending up with funders empty-handed.
I am a small business owner, the chamber of commerce sells my address to whoever pays. On a very regular basis I receive mail informing me how much I can borrow. Crowdfunding is not regulated like banks are. Process and expectation management is being done quite aggressively by platforms and I understand problems are becoming obvious as the market matures. I invite you to read input from Lex van Teeffelen and others:
RTL Z/ANP: Failliet door crowdfunding: 'Hoge rentes nekken ondernemers'
Lex van Teefelen: Dalend rendement crowdfunding 2019 / Flitskrediet: meer vloek dan zegen!
This brings me back to where I started with: were we right in bashing bankers? Their processes are more sound, their communication is done with more restraint. There were extremes, mistakes were made and greed was obvious. I think most bankers tried and try to do an honest and professional job. Let’s keep each other informed, educated and ask before we judge. Hopefully we will get better in doing a proper funding job.
Pieter de Kiewit