The Case of Crowdfunding in Financial Inclusion: A Survey

• Date: 01 March 2017
• DOI: http://doi.org/10.1002/jsc.2120
• Author: Lieven Moor,Hyonsu Kim
• Published date: 01 March 2017

RESEARCH ARTICLE

Strategic Change 26: 193–212 (2017)

Published online in Wiley Online Library

(wileyonlinelibrary.com) DOI: 10.1002/jsc.2120

Copyright © 2017 John Wiley & Sons, Ltd.

Strategic Change: Briengs in Entrepreneurial Finance

Strategic Change

DOI: 10.1002/jsc.2120

The Case of Crowdfunding in Financial Inclusion:

A Survey1

Hyonsu Kim

Vrije Universiteit Brussel, Brussels, Belgium

Lieven De Moor

Vrije Universiteit Brussel, Brussels, Belgium

Crowdfunding can contribute to nancial inclusion through various models

including donation-based, reward-based, lending-based, and equity-based

crowdfunding.

Financial inclusion has emerged as a major concern after the 2008 global nancial

crisis, with the emphasis on social roles of nancial services. Financial inclusion

has been a prominent nancial reform agenda at the international level.

Forinstance, nancial inclusion was adopted as the ocial agenda in the 2009

Group of Twenty (G20) Pittsburg summit. Nine principles for innovative nancial

inclusion were adopted in the 2010 G20 Toronto summit. Moreover, in the 2010

Seoul summit, G20 leaders launched the Global Partnership for Financial Inclu-

sion (GPFI) ocially and endorsed a specic nancial inclusion action plan.

According to the World Bank, more than 50 countries have set nancial inclusion

as their ocial goal (World Bank, 2014).

Financial inclusion is a concept that is contrary to nancial exclusion. When we

dene nancial exclusion as the inability of individuals or rms to access nancial

products and services appropriate to their needs, nancial inclusion is dened as a

state in which individuals or rms have eective access to nancial products and

services appropriate to their needs (European Commission, 2008; World Bank, 2014).

According to the 2014 Global Findex Database, nancial inclusion has

increased in recent times. 62% of adults have an account, up from 51% in 2011.

e 2014 Global Findex Database also reported that 94% of adults have an

account in high‐income Organization for Economic Cooperation and Develop-

ment (OECD) countries, compared to 54% in developing countries.

However, despite this achievement, the data also shows large gaps in access to

nance between the rich and poor, urban and rural, men and women. More than

half of adults in the poorest 40% of income earners in developing countries still

1 JEL classication codes: G21, G23, G28, L31, L86, O16.

Large gaps in access to nance

between the rich and poor, urban

and rural, men and women

persist, though nancial inclusion

at large has increased in recent

times.

Each type of crowdfunding—

such as lending‐based, equity‐

based, donation‐based, and

reward‐based crowdfunding — is

a valuable means to promote

nancial inclusion.

Crowdfunding can contribute to

nancial inclusion more directly

when it is employed for nancing

social projects of social

enterprises.

194 Hyonsu Kim and Lieven De Moor

Copyright © 2017 John Wiley & Sons, Ltd. Strategic Change

DOI: 10.1002/jsc

do not have a bank account. e gender gap in account

ownership is still large. 47% of women and 54% of men

had an account in 2011, while by 2014, 58% of women

and 65% of men had an account. Allen et al. (2016)

indicate that there is signicant disparity in the prevalence

of bank accounts between urban and rural areas. Accord-

ing to them, less than 40% of people in rural areas

havebank accounts, compared to about 50% of adults in

urban areas.

In contrast, Napier et al. (2013) have indicated that

the concept of nancial exclusion is not limited to indi-

viduals but also extends to rms. ey reported that 70%

of women‐owned small and medium‐sized enterprises

(SMEs) in developing economies are unserved or under‐

served by nancial institutions due to restrictive collateral

requirements, shorter maturity of loans, and higher inter-

est rates than men. Moreover, agricultural rms have

nancial constraints, particularly in developing countries

due to the absence of formal nancial instruments.

Meanwhile, nancial inclusion is important to the

poor, since it can help them to use money more produc-

tively and develop nancial security. Access to nancial

services can bring the poor the benets of poverty reduc-

tion and limit some of the risks they can face. Further-

more, nancial inclusion of women is essential for gender

equality. It empowers women and gives them more control

over their nancial life. And this can have a positive eect

on an entire family household (Napier et al., 2013).

Digital nancial services, micronance, Islamic

nance, nancial education, and government intervention

have been increasing, promoting nancial inclusion.

Forexample, digital nancial services, including mobile

banking and electronic nancial transactions, are consid-

ered signicant ways to reduce transaction costs and geo-

graphical barriers (Asongu and Nwachukwu, 2016a,

2016b).

Given that the above methods intend to help nan-

cially vulnerable and disadvantaged groups access nan-

cial services and help reduce transaction costs, crowdfunding

could be a means to help increase nancial inclusion.

Crowdfunding refers to the activity of collecting funds

from a large number of people with small individual con-

tributions to support certain individual or organizational

activities or businesses via the Internet. Crowdfunding can

help the nancially unserved people or rms raise funds

quickly at aordable cost. is inquiry contributes to the

emerging scholarship on inclusive development by pre-

senting the case of crowdfunding in nancial inclusion.

e positioning of the inquiry is motivated by the policy

relevance of structuring what is known so far about the

relationship between crowdfunding and nancial inclu-

sion. Such synthesis of the literature is important to both

academic and policy makers. Moreover, nancial inclu-

sion is a core theme in the post‐2015 sustainable develop-

ment agenda.

e structure of the article is as follows. e rst

section describes the status of and reasons for nancial

exclusion, followed by the second section with an outline

of crowdfunding. Cases in which crowdfunding promotes

nancial inclusion are engaged in the third section.

A fourth section concludes, with suggestions on mecha-

nisms by which nancial inclusion can be consolidated

through crowdfunding.

Stylized facts on nancial inclusion

ough nancial inclusion has increased in terms of

account ownership, large gaps remain with regard to

women and participation of poorer people. 62% of adults

had an account in 2014, up from 51% in 2011. However,

in developing countries, only 54% of adults had an

account in 2014, compared to 94% in high‐income

OECD economies. Account penetration ranges from

14% in the Middle East to 69% in East Asia and the

Pacic. More than half of adults in the poorest 40% of

households in developing countries were still without

accounts in 2014 (Demirgüç‐Kunt et al., 2015). Accord-

ing to the Global Finance Development Report 2014,

people who are poor, young, unemployed, out of work-

force, less educated, and based in rural areas tend to face