The $96 Billion Trust Problem

In 2013 the World Bank projected that by 2025, 344 million households across developing economies could have the capacity to deploy up to $96 billion annually through crowdfunding as an alternative source of early-stage finance for entrepreneurs.

The report also set out the conditions a country would need to meet, and argued that crowdfunding infrastructure has to be built for the local context rather than transplanted from developed markets.

All of that concerns the market. The decisions that determine whether crowdfunding is used sit with the individual founder: whether to leverage it to fund an idea, which platform to use, how to present the project, and how to attract backers.

That process is what my doctoral research set out to describe. What has to be true before a founder in a developing economy will use crowdfunding, and before anyone will fund them?

The question

At the time of the research Pakistan had around 220 million people, 36 per cent of them living in poverty, and income per head of roughly $1,500. On entrepreneurial performance the picture was comparable: the Global Entrepreneurship Development Institute’s 2021 index ranked it 120th of 137 countries. None of that reflects a shortage of people wanting to start a business. What is scarce is finance at the point of starting one.

The conventional reading of that gap is a shortage of capital, and the conventional response is to increase supply. Pakistan has done exactly that. It had three business incubators before 2012 and roughly twenty-two by 2020, only five of them publicly supported. Supply grew more than sevenfold, and early-stage ventures continued to stall.

Supply, then, was not the whole constraint. If it can grow while outcomes do not, something else is deciding the matter: what entrepreneurs and those advising them know about the options in front of them, what they believe those options cost, and whether they regard them as permissible at all. The study examined how the lived experience of stakeholders inside Pakistan’s entrepreneurial ecosystem shapes how crowdfunding is understood and whether it would be used. Twenty-one of them took part: entrepreneurs, educators and the heads of incubation centres.

Analysing what they shared required something the literature did not provide: a description of crowdfunding as a sequence of decisions a founder moves through, rather than a set of conditions a market has or lacks.

The Crowdfunding Ecosystem Process Model

Research on crowdfunding had concentrated on one question: what makes a campaign succeed. It examined content, presentation, reward design and the signals that move a backer to commit. Beaulieu et al. (2015) went further and conceptualised the ecosystem itself, though within the context of laws and regulations. None of that work explained how the ecosystem operates from the founder’s side of it, or what they have to decide between needing finance and receiving it.

That absence matters most in a developing economy. Where the traditional route is effectively closed and crowdfunding is barely known, a founder is not choosing between two established options. They are deciding whether an option almost nobody around them has used is open to them at all.

The Crowdfunding Ecosystem Process Model is the contribution this research makes to that literature. It explains how crowdfunding operates as a system and what a founder has to weigh at each decision point, holding both in a single frame where earlier work treated them as separate subjects. It includes the route not taken, because the decision to use crowdfunding only makes sense alongside the conventional option it is weighed against. That is what makes it usable by an entrepreneur and not only by a researcher. It is published in full as Figure 4 in Ali, H. M. (2024) Stakeholder Perceptions of Crowdfunding as a Source of Early-Stage Entrepreneurial Funding: The Case of Pakistan, PhD thesis, University of Aberdeen, p. 51.

The model is tested against the evidence the study collected, and the findings substantiate it. What participants described about their financial constraints, about crowdfunding as a substitute for conventional finance, and about what entrepreneurs need to succeed corresponds to elements of the framework. Built from the literature, it organises evidence from a market where crowdfunding is not yet established.

The model offers a universal representation of the crowdfunding process, and that generality is what allows it to be applied to any individual market. Local conditions and lived experience can be placed inside the process rather than listed alongside it, so a constraint is identified at the point where it stops a founder instead of being recorded as a national characteristic. That sets these findings alongside Cavallo et al. (2018) on entrepreneurial ecosystems in developing economies, and takes their work further by showing how local context shapes entrepreneurial finance in practice. What that context turned out to be, in Pakistan, is what the interviews established.

What the research found

Analysis of the interviews produced four themes. The first, contextual influence, is the largest, and it accounts for why an ecosystem with growing supply still produces stalled ventures.

Those twelve operate together rather than separately. As participants described them, they produce a risk-averse and innovation-stifled environment in which no single intervention is sufficient. That combination is the finding, and setting out how the mindset challenges compound, rather than listing them, is one of this study’s stated contributions.

Religious obligation showed the least variation of the twelve. All participants acknowledged its role in economic activity, and almost all expressed reluctance towards conventional finance because of the interest attached to it. The avoidance of riba, prohibited under Islamic law, emerged as a significant reason for stakeholders to side-step conventional sources altogether. Where a structure is assessed for religious permissibility before cost or convenience enters the question, an interest-bearing instrument is not an option participants declined but one that was never available to them. Identifying the role of religious obligation in a developing economy with Islamic beliefs is a further contribution of this study, and it places Islamic finance inside the entrepreneurial ecosystem rather than beside it, in a market where the two are still being integrated.

The second theme assessed crowdfunding as a source of early finance in Pakistan. Participants regarded it as viable, pointed most often to technology ventures as the place it would take hold first, with agri-tech, health-tech and e-commerce also named, and considered whether it would substitute for conventional finance or complement it, concluding that the answer depends on the stage a venture has reached. Asked which crowdfunding model would suit the country, most recommended a reward-based one, and the reason given was not cost or convenience but trust: a backer who receives something in return is not being asked to rely on the good faith of a stranger. In a market participants described as carrying a trust deficit, that says as much about the market as about the instrument.

The third theme records what participants believed crowdfunding could deliver: innovation reaching society, economic prosperity, financial freedom, the chance to test an idea and its market before committing, and an improved international image for the country. What they valued in it was mostly not the capital but what a public campaign produces around the capital. The theme also identified who would gain most directly: entrepreneurs and backers, with traditional investors third, on the grounds that a platform would widen the range of ventures open to them and let them spread risk across several at once.

The participants who described these conditions also had views on what would change them, and their proposals divide according to who would have to act.

What the stakeholders recommended

Seven groups emerged, and identifying them is part of the finding: the constraints do not sit with a single actor, so neither do the remedies.

None of the seven can act alone. Incubators are asked to build trust with local investors, academia to run workshops for investors as well as students, government to consult the stakeholders its policies affect, and the diaspora to work with government on establishing a platform. Every recommendation names a second party. The study’s position is that the conditions crowdfunding requires arrive together or not at all.

Why this reaches beyond Pakistan

The findings of this research correspond to sixteen targets across seven of the seventeen United Nations Sustainable Development Goals. Where those targets fall matters as much as how many there are.

Read as a whole, the distribution is the argument. A financing gap in a developing economy is a poverty problem, an education problem, an institutional problem and a coordination problem at the same time as it is a finance problem, and the framework registers it across seven separate goals. That is the case this research makes from the evidence of one country.

Where it stands now

The interviews for this study were conducted in 2021. Nothing in the position has since improved.

What has collapsed is not the amount of money in the market so much as the number of ventures able to reach any of it.

The regulatory position has not moved either. The Securities and Exchange Commission of Pakistan included crowdfunding in its Fintech Roadmap in 2019 and approved one technology-based crowdfunding platform for live testing in its regulatory sandbox in 2020. Pakistan still has no dedicated legal framework for crowdfunding, and platforms and investors continue to operate under securities, anti-money-laundering and companies legislation written for other purposes. Regulatory absence was one of the twelve constraints this study identified, and it remains one.

The recommendations in this research were addressed to conditions that have since become more acute, not less. The gap it set out to explain has widened since it was measured.

What I learned

Fourteen years of entrepreneurial life had not tested me the way the doctorate did. It ran through the Covid-19 pandemic, which moved every interview online and removed whatever a conversation carries beyond its words. It also changed my relationship to a problem I had assumed I already understood from the inside.

Having been an entrepreneur before becoming a researcher proved an advantage rather than a complication. It opened conversations, particularly with academics and the heads of incubation centres, that would otherwise have stayed formal. This research is a continuation of that entrepreneurial work rather than a departure from it.

The finding that changed how I think is mistrust, and how completely it runs through the ecosystem. It shows in hesitance to share information and resources, in scepticism towards new partnerships, and most expensively in institutions behaving as though they compete with one another when collaboration is what mature ecosystems run on. Incubators guard what they know, and academia sits apart from the practice it teaches. Each position is rational for the party holding it and costly for everyone together.

That changed what I take crowdfunding to be. In a market like Pakistan it is not principally a financial instrument. It asks strangers to put money behind a claim they cannot check, which makes it a test of whether the conditions for trusting a stranger exist at all. Where they do not, more platforms will not supply them. It is also why most participants chose a reward-based model: a reward is what you offer when trust cannot be assumed.

In this research, context did the deciding. Religious obligation determined which instruments were usable before cost entered the question. Educational institutions shaped whether entrepreneurship was read as a career or a fallback. Regulatory ambiguity set the limit on what people felt able to attempt at all.

I dedicated the thesis to underserved and aspiring entrepreneurs worldwide. The participants described capable and motivated founders who could convert neither capability nor motivation into a funded venture, and the distance between those two states is what this work is about.

With gratitude to my supervisors, Russell Williams and Trevor Morrow, whose guidance shaped this research, and to the participants who gave their time to it.

Context is not background to the financing question. It is the financing question.