Crowdfunding: Risk of Fraud in Online Collective Funds


Crowdfunding: Risk of Fraud in Online Collective Funds

Crowdfunding became popular in 2012 as an alternative financing for individuals or groups. As the name implies, “crowdfunding”, the funds obtained come from “crowd” or the community or individuals. Basically, the term describes a method to obtain a collective funding from individuals or community (supporters), which is usually done on crowdfunding platforms for a project in humanity, social, or business aspects.

Crowdfunding began to be heard in Indonesia around 2013. Kitabisa,, and Provesty are some examples of Indonesia’s crowdfunding platforms. The more popular the platform is, the more loopholes are there that individual project owner can exploit to abuse the money of supporters (investors/backers/donors).


Being vulnerable to fraud

Giant crowdfunding platforms such as Indiegogo, Kickstarter, and GoFundMe, are not free from fraud. As reported by The Verge (8/29), FTC has been investigating the startup behind iBackPack products – that got funded from supporters on two platform giants, Indiegogo and Kickstarter, worth nearly 800,000 US dollars – which currently has been disappearing without keeping its promises to its backers.

iBackPack was a backpack that promised new revolutionary technology because it was claimed to be equipped with all-in-one tools for laptop users, including claims of ‘bullet-proof’ and ‘secret compartment’. The startup campaigns its business idea with Monahan as the project owner and promised product delivery for the backers. However, no backer has received the promised product until now and they cannot contact either Monahan or the startup because the contact numbers, website, and email are no longer active.

In Indonesia, the public was staggered by the case of Cak Budi who was accused of using joint venture funds from Kitabisa to buy smartphones and luxury vehicles. He pretexted that the goods were used as operational tools for his humanitarian activities. Although at the end he handed it over to a legal and agreed humanitarian organization, the incident made the public aware of the risk of fraud in crowdfunding.


Do your own due diligence

In the UK, the Financial Conduct Authority (FCA) develops a framework related to crowdfunding investment that is flexible to support all stakeholders. Therefore, when it comes to detailed rules, each platform has a different due diligence approach.

As for Indonesia, the Financial Services Authority (OJK) set rules for fintech companies, but new rules specifically crowdfunding will be issued around September. Even it doesn’t cover all types of crowdfunding, only crowdfunding that promises the return to its supporters. In line with the international platforms, the ones in Indonesia also have a due diligence approach that is different from each other.

Although each platform carries out due diligence on the project owners, yet as supporters, ones must do their own due diligence before deciding to support. For example, a business project might be at risk of failure if the funds collected do not reach the target at the specified period limit. Supporters need to consider the risk and find out as much as possible the project owner’s accountability. At least there are things that the supporter needs to examine; the legality of the organization, the organization’s contact number, website and e-mail, the project owner’s contact number, and assessing whether the project is reasonable enough to be realized.






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