There are some systemic risks which are inherent in the model: First, due to the “individual” nature of crowdfunding, there is a possibility that investors may not practice good diversification principles. Second, there may be no secondary market in which investors can sell their investments and exit and hence, there is a risk of illiquidity. Third, there exists the possibility of money laundering. Fourth, these platforms could expose other financial sectors to the risk of default, as occurred during the subprime mortgage crisis. If the rapid growth rate in P2P Lending continues, these risks could become systemic. Fifth, there are cross-border implications, if the funds are solicited through the medium of the internet, as there exists disparities in the application of contract law or securities law in different jurisdictions. Sixth, there is high chance of information asymmetry associated with these platforms, where one party invests/trades based on some information which is unknown to other set of investors. Since there is lack of hard information, there is too much reliance on soft information based on the social networking platforms in this model, which increases the risks.

• The risk of substituting from investment risk to retail risk: currently, the risk in financing start-ups and SMEs are borne by the Venture Capital Funds (VCFs) and Private Equity (PE) Investors. In crowdfunding, these entities solicit investments in smaller sums from large number of investors. Hence, the risk taking by VCF/PE (informed investors) is substituted with retail investors, whose risk tolerance level may be very low, that is they tend to be risk averse. Retail investors may not be able to comprehend the risk in these investments and will be unable to bear the loss of investments. This may turn out to be more dangerous, considering the fact that investments in SMEs and start-ups involve high risk and low liquidity and are generally treated as aggressive and long ter