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14 October 2016

Crowdfunding Prospects, Risks and Management in Russia

The Bank of Russia monitors new ways of lender and loan debtor cooperation and drafts a regulations project but has no intention to implement it any earlier not to interfere with the market shaping. These issues were discussed on the sidelines of a session meeting on crowdfunding and p2p-platforms for financing small entrepreneurship.
The potential of crowdfunding as a means of cooperation between lenders and borrowers without a financial intermediary is above all conditioned by the rapidly developing Internet and the formation of various social networks that support and help to develop different types of social investment. But when it comes to the evaluation of this sector prospects, we should not forget the risks it entails, as Mikhail Mamuta, Head of the Bank of Russia Service for Protection of Financial Service Consumers and Minority Shareholders, pointed out.
At the present moment, the market with the already existing standard p2p-lending (person-to-person) saw entering of new models which presuppose equity fundraising for companies (p2b), mixed models and voluntary co-financing of various projects including social ones by citizens. The major risks are quality of business audit, opacity of the Internet showcase, no guarantee for money return, no monitoring requirements for the collected money investment and others.
"The Bank of Russia has set up a working group which comprises representatives of platforms, in addition, we conduct constant crowdfunding monitoring, which includes analyses of ongoing processes and determination of the existing models features," said Mikhail Mamuta. "Presently, 20 platforms participate in monitoring, although only six were to take part initially, and during the session another three representatives expressed their willingness to join the process."
Taking into account the market size (the overall platform capacity does not exceed 1 billion rubles) and the fact that it has not been profoundly shaped yet, the regulator does not consider it necessary to introduce regulation in the sphere not to hinder the formation of business models. According to Mikhail Mamuta, a considerable increase in both volume and scope of crowdfunding or emergence of substantial risks will condition the transition to regulation: "For instance, it may be caused by formation of a vicious model that will have to be stopped," Mamuta explained. A gradual transition to regulation of the market will only be launched in the second half of 2017.