08 Apr

It is convenient neither for the consumers nor for the producers to get accustomed to a global financial market which is marked by liquidity shortages after a decade of growing global money supply to be present virtually in every part of the globe. The past expansion of monetary supply had been based on two simple facts. One was the ubiquitous presence of petro-dollars earned by hydro-carbon rich countries during a global economic boom when the world economies have been hungry for fossil fuels to sustain their economic productions and growth. The other was the Fed’s decision to keep the interest rates low to fuel consumer spending at home which had positively spilled over to the world economy and to continue to follow an expansionist monetary course. However the market collapse in 2008 in the United States meant that neither the American consumer can continue to sustain the global economic demand nor the world economies will continue to grow in full swing that can bolster the oil prices. The issue is even more critical for the emerging economies which have been fueling their economic growths by attracting a certain share of this global liquidity in to their own countries through direct or indirect foreign investments. As the general expectation, after Janet Yellen has taken over the Fed Chairmanship from Ben Bernanke, revolves around a possible increase of interest rates and an end to global expansionist monetary policy by the Fed, the producers and the consumers in the emerging economies have to find new ways to access to funds.

Crowd Funding Opportunities in Turkey

Turkey as an emerging economy has been trying to find more creative ways to provide liquidity for its market players. It is by no means a coincidence that Capital Markets Board of Turkey (SPK) has recently announced that alternative mass financing tools such as crowd funding will be analyzed by the institution to be integrated in to Turkish financial markets. Crowd funding, which is basically a funding method based on pooling of financial resources to fund a project through utilizing the internet as a platform, has been coming to the fore in recent  years especially after the decline of the aforementioned monetary policies and resources in the United States and Europe.  The global volume of crowd funding has already reached USD$ 4 billion in a very short period of time.

Generally the crowd funding has been carried out for two different purposes. One is the pooling of resources for a strictly social, non-profit projects and the other one is the fund raising for a profit based business project. Since the amounts involved are usually not very substantial it is more geared to support the start ups rather than the well established firms that are looking for high levels of investments. Given its start up orientation the crowd funding might be particularly useful for the emerging economies like Turkey which has been looking for alternative methods to boost the number of their startup companies. What is especially important for such startup companies is the feedback opportunity provided by crowd funding community. Since the funding itself is the end result of an online process of interaction, the fund providers usually share their feedbacks about the projects that they are financing. That is a very valuable service for the startups which are on the initial stages of their business developments.

Crowd funding is a quite new method of fund raising in the world and not surprisingly it is in the stage of only an early development in Turkey. In Turkey only a handful of internet sites have been operating in crowd funding business and there is yet no legal arrangement has been done or any legislation has been enacted. However SPK has already started to take crowd funding in to account and especially interesting in this context is its statement that compares crowd funding to public offerings and listing advantages.

Conclusion

Crowd funding might serve as an alternative tool for the companies in the emerging markets which might be exposed to the ill effects of global economic slowdown after the global economic meltdown in 2008. However it is crucial to mention that it can not serve as a silver bullet for the credit shortages due to the fact that the volumes involved in crowd funding is minuscule and to address the problem of global credit shortages it requires more structural measures. This method of fund raising is expected to be picked up by individual fund seekers or more by startup companies.

 


Herdem Law Firm, Istanbul Turkey

 

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