By Daniel Makina, University of South Africa
“Innovative finance represents a set of financial solutions that create scalable and effective ways of channelling private money from the global financial markets towards solving pressing global problems”. –Judith Rodin and Saadia Madsbjerg, respectively President and Managing Director of The Rockefeller Foundation[i]
Financial technology (fintech) innovations have given way to fast growing forms of alternative financial markets competing with traditional markets. These new forms of finance are commonly referred to as innovative finance, disruptive finance or distributed finance. Crowdsourcing, which means seeking ideas and resources from crowds, has resulted in one form of innovative finance known as crowdfunding.
Modern day crowdfunding is facilitated by the internet aided by Web 2.0 technology. Professor Ethan Mollick of the Wharton School of the University of Pennsylvania provides a fitting definition as follows: “Crowdfunding refers to the efforts by entrepreneurial individuals and groups – cultural, social, and for-profit – to fund their ventures by drawing on relatively small contributions from a relatively large number of individuals using the internet, without standard financial intermediaries[ii].” It should however be noted that crowdfunding cannot only be defined by the use of the internet because it can still be facilitated by other means without involving the internet. In fact, crowdfunding has been in existence for many centuries although it is the crowdfunding mechanism facilitated by the ubiquitous Web 2.0 internet technology that has gained popularity[iii].
Typically, a crowdfunding transaction involves three key players, viz: (1) the project initiator seeking funding who may not necessarily be the beneficiary because another legal person can act as agent of the beneficiary; (2) the funders, namely, the funding crowd that provide the finance; and (3) the internet platform that connects the project initiator with the funding crowd.
Among other uses, crowdfunding is increasingly being utilised to fund health projects. For instance, by 2018 just one USA-based crowdfunding platform – GoFundMe – was hosting more than 250,000 health campaigns every year. Notably, there are four broad categories of health projects that have utilised crowdfunding[iv]. These are health expenses projects, not-for-profit health initiatives, not-for-profit health research projects and commercial health innovations. Crowdfunded health expenses projects involve financing an individual’s out-of-pocket expenses for medical services such as complex surgeries, cancer treatments, wheelchairs, etc. Crowdfunded not-for-profit initiatives involve fundraising for medical institutions, disease awareness campaigns, global health missions and the like. Crowdfunded not-for-profit health research projects involve fundraising for research on treatments of rare and neglected diseases. Crowdfunded commercial health innovations involve funding health ventures for profit that require start-up capital.
There are several benefits of health crowdfunding. First, it enables public participation in funding health and as such fosters public awareness of health issues. In other words, health crowdfunding facilitates financial inclusion in health matters. Second, it facilitates health research that can lead to vaccines. Third, it enables funding of rare diseases or unexpected outbreaks of epidemics or pandemics. Incidentally, in the past two decades there have been at least five outbreaks of dead viruses: the SARS virus in 2002, the H1N1 virus in 2009, the MERS-COV in 2012, the Ebola virus in 2014 and recently, the coronavirus (COVID-19) pandemic first detected in December 2019 in China but has since spread to every corner of the world.
In one of its responses to the COVID-19 pandemic, the World Health Organization (WHO) has embraced crowdfunding to augment its funding to fight the pandemic. In cooperation with the United Nations Foundation and the Swiss Philanthropy Foundation, WHO launched on 13 March 2020 the COVID-19 Solidarity Response Fund and set up a website (www.COVID19ResponseFund.org) seeking contributions from the public worldwide to raise a target amount of US$7 billion. Similarly, its partner, the UN Foundation was receiving donations via checks or wire transfers through its contact (COVID19Fund@unfoundation.org) to finance WHO’s response to the COVID-19 pandemic. The objectives of the COVID-19 Response Fund are to support WHO’s global efforts to track the spread of the coronavirus, support developing countries with weak health systems, and assist the development of vaccines, treatment and tests. The initiative raised US$71 million from about 170 000 individuals and organisations in 10 days after its launch. At the same time, the Melinda Bill Gates Foundation and Norway were reported to be contemplating another crowdfunding initiative to raise US$2 billion funds for the development of a COVID-19 vaccine.
The COVID-19 crowdfunding initiative differs from standard crowdfunding initiatives in that it does not involve intermediary platforms such as GoFundMe, KickStarter, Crowdcube, and the like. Thus, it avoided being subject to transaction fees and costs charged by intermediary platforms, thus could be viewed as a form of disintermediated crowdfunding. Furthermore, the initiative has a global reach attracting funding from not only the multitude of individuals as is the usual case with most crowdfunding initiatives, but from also big business and organisations such Google, Facebook, FIFA, among others. This is indeed different from crowdfunding defined as “drawing on relatively small contributions from a relatively large number of individuals using the internet”. One would appropriately call it mega-crowdfunding, meaning, sourcing of funds from multitudes of individuals as well as big and small business and organisations.
Going forward, the lessons learnt from COVID-19 crowdfunding will come in handy if the vaccine for the coronavirus is found. In order to facilitate the accessibility of the vaccine to poor and fragile countries, WHO might well be advised to contemplate a COVID-19 vaccine mega-crowdfunding to fund mass vaccination of people in these countries. Similarly, the International Finance Facility for Immunisation (IFFIm), which already has experience in issuing vaccine bonds on behalf of Gavi, a public-private global health partnership, to fund immunisation in low-income countries, would complement the funding efforts of WHO. While at present IFFIm’s vaccine bonds are issued in capital markets and underwritten by long-term, irrevocable and legally binding pledges from ten sovereign rich governments, in the case of complementing WHO’s crowdfunding, it could issue COVID-19 vaccine bonds that would be subscribed by the general public, private companies, organisations and governments to finance a vaccination programme in poor and fragile countries.
The morality
of health crowdfunding is that it democratises the funding of health to save
lives, especially during unforeseen epidemics or pandemics. However, when
crowdfunding is undertaken by national governments, it unintentionally leads
them to shirk their responsibility of providing adequate healthcare coverage to
all citizens. In other words, health
crowdfunding undertaken by governments runs the risk of being used for narrow political
projects.
[i] Madsbjerg, S. and Keohane, G. (2016). The Innovative Finance Revolution: Private Capital for the Public Good. Foreign Affairs, The Rockefeller Foundation Special Issue.
[ii] Mollick, E. (2014). The dynamics of crowdfunding: An exploratory study. Journal of Business Venture, Vol. 19 (1): pp. 1-16.
[iii] Makina, D. (2019), Extending Financial Inclusion in Africa, Elsevier, https://www.elsevier.com/books/extending-financial-inclusion-in-africa/makina/978-0-12-814164-9
[iv] Renwick, M. J. and Mossialos, E. (2017). Crowdfunding our health: Economic risks and benefits. Social Science & Medicine, Vol.191: pp. 48-56.
