Expert opinions, INVESTMENT CLIMATE, INVESTMENTS

Individuals ousted from crowdfunding

The falling bank deposit rates, along with the new legislation that levied an income tax on interest accrued on deposits exceeding 1 million rubles are pushing even the staunchest supporters of bank deposits to cast about for alternative ways of investing idle cash.

Credit: depositphotos.com
Credit: depositphotos.com

In this context, it is small surprise that private investors are showing a steady trend to diversify their projects between investment products and crowdfunding. Both markets are controlled by the Central Bank, provide good returns and are an alternative to the stock market.

It should also be taken into account that lending to SMEs and financing factoring projects are well-structured low-risk transactions that also fund real operating businesses. The creditor retains the right of claim for their products that have already been shipped and put up for sale.

As for the stock market, it is too unpredictable in Russia, and the generally low financial literacy makes things even worse. The situation has somewhat improved lately through the efforts of the Central Bank and market participants, but mainly in relation to specific products, not with respect to general financial planning or stock market operations.

They meant it for the best

A few months ago, the government limited ‘non-professional’ investment to RUR 600,000 a year, in a policy aiming to protect the interests of private investors and preclude pyramid schemes.

However, this requirement has actually limited people’s opportunities in crowdfunding and also restricted small businesses’ access to private individuals’ money. This kind of lending will simply make no sense — an individual investor will use up the year’s limit after one deal to finance a small company’s deferred payment or cash gap; but investment is about making your money work non-stop.

Essentially, the actions of the regulatory authority watching over investors have so far increased risks for investors. While some private investors are looking for new high-yield but unregulated markets and falling victim to financial pyramids there, others are opening accounts with foreign brokers. As was already noted, the risks of investing in Russian securities are high, which means that those investors’ money will be funding Western economies instead.

The future of crowdfunding in Russia

In these circumstances, marketing costs and the costs related to servicing non-professional investors turned out to be too high for platforms attracting collective investment.

One platform needs thousands of individual investors to be a successful business. Therefore, it seems more lucrative to have a bunch of large investors such as funds or banks. Based on international experience, the b2b model can be scaled up faster and can become more convenient for SMEs in general.

The Russian crowdfunding market is developing towards building cooperation with market professionals such as management companies, factoring companies and banks. Last December, Ozon.Invest decided to become a full-fledged b2b platform. It will no longer post any offers for private investors. Lemon.online, an online crowdfunding service that is a member of the Finbridge Group, requested that the Central Bank review its investment limit calculation methods for non-professional investors; otherwise Lemon.online plans to stop attracting investment from individuals.

I believe it will not take long before we see similar statements from other major platforms involved in raising collective funds. Apparently, crowdfunding platforms are taking an indefinite raincheck on its objective of bringing money to the real sector of the economy faster. Only professional players will be able to invest through most of them and the platforms will not become a widely used funding tool for entrepreneurs seeking private investment.

By Leonid Kornilov, Managing Partner, Finbridge Group

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