The European Commission (EC), the executive branch of the European Union that recommends legislation, implements various policies and decisions, among other duties, is being asked to use its European Social Fund (ESF) to issue loans via crowdfunding and peer to peer (P2P) lending platforms across Europe.
The ESF is the EU’s primary financial instrument for supporting employment initiatives in EU member states. The fund also aims to promote economic and social cohesion.
The ESF achieves these objectives by investing in various firms and projects that support jobs and fairer or equal opportunities for all EU residents. The European Crowdfunding Network (ECN), an international non-profit entity that promotes crowdfunding as an alternative funding mechanism for SMEs, has stated that P2P lenders can help with creating new jobs.
A report released by the ECN noted that the ESF usually provides funding to the microfinance sector, which has some features that are also found in P2P markets.
The ECN stated:
“Within the Fintech ecosystem, crowdfunding platforms are of particular interest to SMEs, microenterprises and socially oriented businesses. Crowdfunding represents a unique opportunity to test the market readiness for virtually all types of venture, from micro companies and self-employed, up to start-ups and established SMEs.”
The ECN added that the ESF offers key opportunities to form partnerships with various crowdfunding platforms.
The ECN also mentioned that crowdfunding is important for businesses that are experiencing challenges with gaining access to credit, due to limited revenue, short or no credit history, lack of collateral, high-risk nature of the project or of the markets of reference.
The ECN further noted:
“Crowdfunding addresses the needs of individuals underserved by the traditional credit supply, such as new entrepreneurs, people belonging to vulnerable groups and people at risk of social exclusion. These individuals usually resort to alternative and innovative finance – including crowdfunding – when they set up a new business.”