Official Question UPSC 2026
Which of the following statements about Crowdfunding is/are correct ? 1. Crowdfunding is solicitation of funds (small amount) from multiple investors through a web-based platform or social networking site for a specific project. 2. Small and Medium Enterprises (SMEs) are able to raise funds at lower cost of capital without undergoing rigorous procedures. Select the answer using the code given below :
Solution & Analysis
Answer: C
According to the Securities and Exchange Board of India (SEBI) guidelines on alternative investment mechanisms:
•Statement 1 is Correct: Crowdfunding is formally defined as a method of raising capital through the collective effort of a large number of individual investors. This solicitation is executed primarily online via specialized web-based platforms or social networks, allowing creators to fund specific projects or ventures directly from the public.
•Statement 2 is Correct: This model is highly advantageous for Small and Medium Enterprises (SMEs) and early-stage startups. By bypassing traditional financial intermediaries (like banks or venture capitalists), SMEs avoid massive collateral requirements, heavy bureaucratic compliance, and high interest rates. Consequently, they are able to raise necessary funds at a significantly lower cost of capital and without undergoing rigorous institutional procedures.
Conclusion: Both statements accurately describe the mechanics and benefits of crowdfunding.