MINISTER of Finance Dr Peter Phillips is considering the use of crowdfunding as an alternative method of raising funds for the private sector.

Speaking at the United Nations Financing for Development Conference in Addis Ababa, Ethiopia last week, Phillips stated that crowdfunding could be a “genuinely exciting way of democratising finance” for the sector, after being heralded as a potential source of financing for developing countries by experts and policy makers.

Crowdfunding is a method by which ordinary citizens invest money in businesses, social projects or charitable causes globally through electronic payments. The initiative has enabled many individuals and businesses across the globe to raise sizeable sums of money from strangers to get a project or business moving.

One of the earliest local initiatives was introduced by the Jamaica National Small Business Loans Limited in 2013 under the global portal isupportjamaica.com. The platform seeks to raise funds for local start-up projects and foundations.

“We would like very much to look at the possibilities of what could occur using crowdfunding,” Phillips stated during the panel discussion.

“Access to affordable financing is of central importance, especially if we are to satisfy the development goals which are the heart of this conference. There is the prospect of crowdfunding being a viable solution for helping Jamaica, and other countries, channel financing to small and medium enterprises to grow private sector investment,” the minister said.

Last year, the total amount of financing raised through crowdfunding amounted to US$16 billion and is projected to reach $34 billion by the end of the year.

Before that, the International Organisation of Securities Commissions (IOSCO), the standard-setting body for the Financial Services Commission, estimated that the crowding-funding market had doubled each year, reaching US$6.4 billion in 2013 from annual growth in peer-to-peer lending.

By 2020, the World Bank estimates that developing countries alone will raise US$90 billion from the initiative.

Experts who spoke at the side event included Jason Best, co-founder and principal at Crowdfund Capital Advisors, Oliver Gadja, founding chairman and executive director of the European Crowdfunding Network, and Samantha Attridge, head of finance and development policy at the Commonwealth Secretariat.

The panel was joined by Peter Baeck, principal researcher for public and social innovation at Nesta, who explained that, while crowdfunding is reliant on investors having Internet access, the rapid take-up of smart mobiles in developing economies is opening up crowdfunding opportunities.

“What drives crowdfunding is the proliferation of social media, the Internet and new technologies which are incredibly low-cost and mean you can reach out to large groups of people,” Baeck stated, according to a release from the Commonwealth Secretariat.

The speakers noted the importance of governments putting in place

measures which support

the development of crowdfunding, but which also regulate the industry to safeguard investors.

The FSC is now seeking to develop rules for crowdfunding and depository receipts as the initiatives develop into a credible investment options.