The Sustainable Development Goals (SDGs), which are anchored in the UN 2030 Agenda for Sustainable Development, require aggregate annual investments of 5 to 7 trillion US dollars. This amount cannot be reached by the public sector alone. Mobilising private capital to ensure the achievement of the SDGs therefore plays a critical role.
Against this backdrop, crowdfunding offers the opportunity to develop new concepts for leveraging private investment for development cooperation. Originally used as a donation function mainly for charitable purposes, crowdfunding increasingly functions as an instrument of corporate debt financing, especially for start-ups and small to medium-sized enterprises (SMEs). For crowdfunding-based lending models particularly (“crowdlending”), enormous growth potential is predicted. By 2015, crowdfunding had already reached a total market value of over 35 billion US dollars worldwide.
On behalf of the Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH adelphi investigated the possibilities for the German Ministry of Economic Cooperation and Development (BMZ) to establish crowdfunding as another financing model for some of its operations. To this end, various concepts were assessed for their potential to allow the BMZ to offer investment incentives to German investors and to create new financing opportunities for start-ups and SMEs in developing countries. Furthermore, this method was intended to create jobs locally in developing countries and promote sustainable business models that assist the pursuit of the SDGs. On the other hand, private German investors should become more aware of developmental cooperation in general and the potential impact of their capital.
Supporting crowdfunding, for example through credit default insurance for investors, is a promising but largely unexplored financing model for governments. This leads the German government into new risk territory regarding legal and insurance matters. To anticipate these risks, adelphi assisted with a feasibility study along with Osborne Clarke International Legal Practice and sfr consulting, a consultancy which specialises in risk financing.