Crowdfunding in Latin America: a problem of trust

It is common to analyze entrepreneurship in terms of what the entrepreneur must do: a sustainable business model, strengthen their managerial skills, understand the market they are in, among other arduous tasks. When it comes to financing, it is common to find the possibility of obtaining donations. On this last point, one of the alternatives found by social causes is in crowdfunding or collective financing. However, in Latin America, compared to the United States or Europe, this model is still in its initial stages. It is not a general practice. Why? Let’s see what the entrepreneurial ecosystem tells us.

In the first place, philanthropy is typical of developed countries in which both natural and legal persons have an important sense of solidarity and donation. Likewise, there is a national culture of trust in the other, in the legal framework and in government and private organizations, as well as their management of the money that is given to them. This environment of trust in the state and in others allows for an adequate context for the generation of platforms that raise money to support social causes. In fact, in the United States, in 2007, in an environment of uncertainty, financial contraction, a decrease in investor confidence and a drop in loans from banks, platforms such as Kickstarter emerged with force that allowed a third way to start-ups.

However, in Latin America, in contexts of high uncertainty marked by corruption in the public and private spheres, armed conflicts, sustained violence, high inequity and inequality, it is less common to find altruistic attitudes given to spontaneous and permanent solidarity. According to (Mendenhall, 2011), in these societies there is no “thin trust” known as the ability of individuals to trust people outside their close circle of family, friends and acquaintances. This type of trust is highly related to the ability to trust the other and the reciprocity of social relationships. On the contrary, society is focused on the construction of “thick” trust that is related to the consolidation of strong and lasting social relationships, such as those established with long-standing friends, family or colleagues.

In general, it is established that the existence of “thin” trust is necessary for the survival of phenomena associated with charity, solidarity or philanthropy, since it is trust that, ultimately, reinforces spontaneous cooperation without the need for the mediation of norms and standards. strongly established rules. Therefore, in societies in which “thick” trust prevails, there is a high level of mistrust and an inability to close gaps between strangers, easily generate social relationships and, therefore, the success of social causes depends, to a large extent, on the order and structure provided by the government, the bureaucracy and international cooperation.

This situation, among others, explains why the financing of entrepreneurship is focused on one’s own resources, or on family and friends, that is, on those who are part of that thick trust, which can result in the saturation of the close circle, and the impossibility of scale the potential business, in obtaining resources in other groups.

To some extent, according to (Mendenhall, 2011) The difficulty of finding a proclivity towards philanthropy in societies such as Latin America is related to the lack of faith or trust that a stranger has to donate or invest in a purpose that is not their own, is not highly supervised or for which there are no clear guarantees. In other words, it is necessary to work on mechanisms that make trust emerge among those who promote a social cause, a new product or an enterprise in general, to strengthen an entrepreneurial system that feeds local supply and demand.

Thus, it is essential to generate guarantees and all kinds of transparency measures to promote the active participation of the community in activities and practices related to philanthropy, donations and support for others. In the first place, to respond to the lack of trust that allows an easy generation of transactional practices with strangers. Second, forging strategies to increase solidarity, local consumption and support for entrepreneurship and especially social entrepreneurship. Finally, it is necessary to explore how to guarantee those who participate in the campaigns that their resources are really invested in what is shown, in what is expected, so that this creates an ecosystem oriented towards trust, specifically transactional, that results in a strengthened community.

References:

Mendenhall, S. E. (2011). Dimensions of Colombian Philanthropy: How giving is linked to social capital. Faculty of the University of Graduate School .