Crowdfunding could plug gaps for services, says LGiU

21 Mar 17

Crowdfunding could offer a much-needed source of extra income for cash-strapped local authorities, claims a think-tank.

Local authorities have so far been “rightly cautious” about crowdfunding and little used it as a way of raising funds, The Local Government Information Unit says in a report.

The Guide to Crowdfunding for Local Authorities, explains that raising monetary contributions from a large number of people “holds the potential to raise money for local charities and social projects, to earn higher interest on council savings, to plug funding gaps for services and to support local businesses and the economy”.

The document - by LGiU policy researcher Jennifer Glover and released on Thursday last week - offers practical tips on how authorities could make the most of the three mains methods of crowdfunding as well as exploring the risks.

She said: “Crowdfunding has created a frenzy in the business community and the creative sector because of its ability to raise money quickly and flexibly, bypassing traditional sources of finance.

“But it has yet to become as widely adopted among local authorities. This is in large part down to the fact that councils are rightly cautious about new fads when it comes to handling public money.”

Glover added: “As funding cuts continue to put a strain on both statutory and discretionary services alike, increasing public engagement with community services will become even more essential.

“Asking the community to prioritise and fund their own projects could have the threefold benefit of involving residents, continuing important services and reducing the financial burden on the council.”

The report covers three types of crowdfunding: 

 

  • Donations-based crowdfunding. People donate towards a project, product or business. Contributors see no return – it is comparable to donating to charity.
  • Equity crowdfunding. Councils could invest into local companies that have been listed on equity crowdfunding platforms, with the aim of supporting local economic growthy.
  • Peer-to-peer crowdfunding, which works like a bank loan by matching a borrower directly with an individual or organisation with money to lend. It bypasses banks and is billed as a good way for the lender to earn higher returns on their money compared with putting it in a standard bank account. The borrower benefits from a faster, more flexible process and competitive interest rates.

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