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 :
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2 ✓ UPSC's answer
- (d) Neither 1 nor 2
Why the answer is (c)
• Crowdfunding raises small amounts from a large number of people through an online platform or social network to finance a specific project, venture or cause; statement 1 is the standard (SEBI) definition and is correct.
• It gives small and medium enterprises and start-ups access to capital at a lower cost and with fewer procedural hurdles than a bank loan or a public issue, which require collateral, disclosures and regulatory clearances — statement 2 is correct.
• Crowdfunding takes several forms: donation, reward, peer-to-peer lending and equity-based; SEBI regulates only the securities-based variants.
• The trade-off is investor protection: SEBI has cautioned that unregulated equity crowdfunding platforms operate outside its oversight.
• Hence both 1 and 2, option (c).
Why the other options are wrong
- (a) 1 only
- Statement 2 on cheaper, simpler fund-raising for SMEs is also correct.
- (b) 2 only
- Statement 1, the definition of crowdfunding, is also correct.
- (d) Neither 1 nor 2
- Both statements are correct.
Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2026, held on 24 May 2026. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.