Crowdfunding potential for public sector infrastructure finance

A new report has argued that investment-based crowdfunding can provide local authorities with a competitively-priced source of capital and increased levels of civic engagement.

Financing for Society: Assessing the suitability of crowdfunding for the public sector, published by the University of Leeds, finds that investment-based crowdfunding can offer substantial benefits for public sector bodies seeking capital for infrastructure finance. The crowdfunding sector invested a cumulative total of £6.2 billion into the UK economy at the end of 2017, but the wider retail investment market is much larger at £1.6 trillion.

Through the competitive allocation of pilot funding, the project team worked with six case studies drawn from three UK local authorities (Bristol, Leeds and the Isle of Wight) and three NHS bodies, to help them conduct feasibility studies.

The three local authority case studies provided scope to test investment-based crowdfunding against a range of projects and delivery models. Bristol City Council and Leeds City Council case studies focused on low carbon infrastructure, whilst the Isle of Wight Council case study focused on new build developments and redevelopments of existing sites that play a role in the council-led ‘Isle of Opportunity’ regeneration programme. Based on the results of the study, Bristol, Leeds and Isle of Wight are continuing to explore the piloting of crowdfunding.

It found that finance can be accessed at a comparable rate to loans from the Public Works Loan Board (PWLB), and be efficiently raised and drawn down utilising a new Community Municipal Bond Structure. The report concludes that investment-based crowdfunding could raise amounts for individual projects in the region of £0.25 million to many millions in a single issue or via a programme of bond raises.

Mark Davis, Associate Professor of Sociology at the University of Leeds, said: “At a time when public sector finances are under increasing pressure, crowdfunding – still mistakenly seen as being just another form of charitable giving – has the potential to offer this radical alternative via an investment-based business model that generates social, environmental and economic returns.

“This report provides a helpful guide to encourage public sector bodies to unlock the potential of crowdfunding, and in turn start to create a better, more sustainable world by disrupting habitual uses of money.”