Prospects for institutionalization of crowdfunding: a developing country perspective
Authors: Rizwan Amina , Naveed Shabana , Mustafa Faisal , Hanif Muhammad Shehzad , Khurshid Aitzaz , Khan Talha Zubair Ahmad 
Published: June 2024

PurposeThis study explores the adoption of crowdfunding in Pakistan, focusing on the challenges and opportunities within its unique entrepreneurial ecosystem. The research aims to provide insights into the regulatory mechanisms, stakeholder engagement and institutional factors influencing crowdfunding adoption.Design/methodology/approachSeventeen semi-structured interviews were conducted using a purposive sampling technique. Data was collected from diverse stakeholders involved in the crowdfunding process including investors, entrepreneurs, platform owners and regulators.FindingsThe study identifies various challenges, including regulatory gaps, investor concerns, platform-related issues and systemic challenges such as political instability and weak institutions. These challenges hinder the effective implementation of crowdfunding in Pakistan. Moreover, the study highlights opportunities for financial inclusion, bridging the gap between investors and entrepreneurs, and leveraging Pakistan’s entrepreneurial landscape for crowdfunding growth. While several challenges were common to both developed and developing countries, the study also identified distinct challenges such as digital literacy, reliance on the undocumented economy, insufficient regulatory frameworks and investor mindset specific to developing countries.Research limitations/implicationsSince crowdfunding is an emerging phenomenon in Pakistan, this study had limitations as no official crowdfunding platform other than the Pakistan National Investor Portal had started operations. Therefore, this study involved only those stakeholders who were involved in designing regulatory sandbox suggestions. The sample size could be increased to include stakeholders from other developing countries in the future. This article, however, provides significant strategic guidance for policymakers in developing a framework to improve financial inclusion in development.Practical implicationsThe study provides critical areas of concern for regulatory authorities for developing appropriate legislation to help overcome the challenges to the institutionalization of crowdfunding. This study also encourages stakeholders like investors and entrepreneurs to participate in crowdfunding while looking at the perspective of other parties.Social implicationsThis research highlights the need for the Pakistani society to be well-informed about alternative investment opportunities, like crowdfunding. The micro, small and medium enterprises (MSME) sector, along with the government, can also explore the benefits of crowdfunding to address their lack of access to capital and enable the inclusion of an informal economy to reduce poverty in a developing country.Originality/valueCrowdfunding is a new phenomenon in Pakistan, and the scope of its application in the MSME sector has not been thoroughly investigated. This study reveals how micro and small firms can use crowdfunding to boost their economic operations by overcoming challenges and taking advantage of fintech (financial technology) to achieve financial inclusion, leading to economic sustainability.