This is a guest post by the Mexico Institute at the Woodrow Wilson International Center for Scholars.
Borrowing from formal banking institutions in Mexico requires high securities and involves high interest rates. As a result, it’s difficult for entrepreneurs, and small and medium enterprises to establish and grow businesses via the traditional financial system. There is a need to fill this gap with affordable capital to promote innovation, entrepreneurship, and ultimately, economic growth.
In this regard, crowdfunding can help to close the financing gap that has prevented innovation and entrepreneurism. Crowdfunding is the practice of funding a project by raising many small amounts of money from a large number of people. Supported in recent years by increasing internet access, crowdfunding has been gaining momentum. Even when it has been out there for hundreds of years (e.g. church’s alms or tandas) new technologies now allow larger numbers of potential donors or investors.
This year the Multilateral Investment Fund, member of the Inter-American Development Bank, published a report titled Crowdfunding in Mexico: The Power of Digital Technologies to Transform Innovation, Entrepreneurship & Economic Inclusion which analyzes the opportunities and challenges that Mexico faces to foster this practice. The document highlights signs of optimism for the success of crowdfounding like the country’s entrepreneurial culture, the independent creation of the Mexican Crowdfunding Association, economic reforms pushed through the current administration, and proximity to the U.S. capital markets.