In India, during the last few years, the IPO market has not been very active. Though, SEBI, has been at the forefront in facilitating fund raising by SMEs through measures like SME segment in Stock Exchanges, Category I- SME funds under AIF, Institutional Trading Platform, etc., still there is need to encourage innovative way of fund raising to provide an impetus to genuine SMEs/start-ups and to explore other alternative models of fund raising with appropriate framework in consonance with retail investor protection. Since the crowdfunding phenomenon is gaining popularity, its importance cannot be ignored. To regulate crowdfunding, it is very important to take note that while it is necessary to ensure that start-ups/SMEs could raise funds at ease, it is equally important to ensure that no systemic risks are created wherein retail investors are lured by some unscrupulous players by substituting the existing framework, which has been developed over a period of time through experience and observation. Hence, there is necessity to strike a proper balance between investor protection and the role equity markets can play in supporting economic development and growth. While some regulators have been criticized by the media from “taking the crowd out of crowdfunding”, there also exists several media reports explaining the risks in the model and stating that regulators who are today denounced for their intervention will then be castigated for their neglect.

IOSCO Paper states that “A risk posed by moving to regulate a previously exempt sector is the perceived rubber stamping of the industry through regulation, creating credibility in the P2P lending and equity crowd-funding markets. This could attract less experienced investors to these markets who may not understand the risks involved in these types of investment.”

Therefore, it would be appropriate for regulators to take appropriate stand in this regard and send out a message to the various stakeholders recognizing this emerging route of funding. India, so far, does not face a significant exposure to crowdfunding but given that this mode of fund raising is growing at a scorching pace, it is important that regulators keep an open eye and a vigilant attitude.