Mumbai | 25 Jul, 2018 (1 year, 10 months ago)

Other

Is crowdfunding as an investment legal?

From my research I know that debt-based crowdfunding is legal in India. Crowdfunding platforms like Milaap have successfully being doing this for some time now. But they do not get a higher return than their investment. As in, they only receive the principal amount, over the course of the loan tenure in equal installments. I was wondering if crowdfunding as an investment where in lenders get a return like a Fixed Deposit account is legal. So if I through crowdfund, give 100$ then with interest I get 110$ back over a period of time. Your help is very much appreciated.
Answers
23 Aug, 2018 | 15:10

Hi, You're absolutely correct about the fact that platforms like Milaap facilitate debt funding and some of them may not have a high return on investment. However, one may also look at the nature of funding that Milaap (in this instance) intends to facilitate. As per my understanding of Milaap's platform, it is focused primarily on social impact (which is the priority rather than high returns). However, other platforms like Faircent may allow the flexibility to determine the returns as per agreement between the lender and the borrower. That being said, debt funding is subject to legal limitations at all times and you may consult with a professional to navigate through the laws applicable to your specific case.


13 Aug, 2018 | 12:41

Hi,
Equity crowdfunding in India is currently in a grey area, with there being a lack of clarity on not just the applicable law, but the appropriate regulator. Primarily, this uncertainty stems from broad interpretations of certain legislations such as the Companies Act, 2013 and SEBI governed securities laws. However, debt crowdfunding, as you rightly pointed out, has obtained a sense of legality given the RBI's directions concerning peer to peer lending.
In order to devise a business strategy around crowdfunding in India, one would need to clearly identify the core issue that one wants to address, and then assess the possible legal implications of such a strategy. These would determine how one can structure such a business that would remain compliant with current laws, as well as have the necessary headroom to alter the business model, or even pivot, when the necessary crowdfunding regulations come in place.
Please feel free to reach out to me in case of any issues or concerns.


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