William Eichler 01 May 2019

Investment-based crowdfunding has ‘untapped potential’ for councils, study says

Crowdfunding has ‘huge, untapped potential’ for public sector infrastructure finance, a new study has concluded.

The University of Leeds study, entitled ‘Financing for Society’, has found that investment-based crowdfunding can offer substantial benefits for public sector bodies seeking capital for infrastructure finance.

It argues that finance can be accessed at a comparable rate to loans from the Public Works Loan Board (PWLB), and be efficiently raised and drawn down utilising a new Community Municipal Bond Structure.

Funded by a grant from the Department for Digital, Culture, Media and Sport, the researchers worked with six case studies drawn from three councils and three NHS bodies to help them conduct feasibility studies.

They found that funds can be raised at a scale commensurate with the needs of local authority project finance. Swindon Borough Council, for example, the only council to use crowdfunding in this context, raised £4.3m in 2016/17 to fund two solar parks.

‘At a time when public sector finances are under increasing pressure, crowdfunding – still mistakenly seen as being just another form of charitable giving – has the potential to offer this radical alternative via an investment-based business model that generates social, environmental and economic returns,’ said Dr Mark Davis, associate professor of sociology at the University of Leeds.

According to the report, the potential take-up of investment-based crowdfunding could be very high. The crowdfunding sector had invested a cumulative total of £6.2bn into the UK economy at the end of 2017, but the wider retail investment market is much larger at £1.6tn.

Crowdfunding could raise between £0.25m to many millions in a single issue or via a programme of bond raises for individual projects, the study estimated.

As well as a new source of capital, the research also suggested that crowdfunding could provide a new model for local authorities to engage and communicate with their residents.

Bruce Davis, co-founder and managing director, Abundance Investment, commented: ‘During a time of severely reduced budgets, local authorities are being asked to lead on some of the biggest issues facing the country, from decarbonisation, to building social housing, to delivering effective social care to an ageing population.

‘Successful delivery requires innovative thinking as well as maintaining the support and trust of residents. If local authorities are to meet these challenges over the coming decade, sourcing capital at a competitive rate and a suitable scale while engaging effectively with local people will be critical – this report shows unequivocally that crowdfunding should be a valuable weapon in their armoury.’

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