Crowdsourcing: Citizen Participation in Finance

Abstract

The opacity of the financial markets challenges us as citizens. The cascading financial arrangements leave us perplexed. Is this sector seriously in line with the Sustainable Development Goals (SDGs)? We all know that ‘money is the key’! We will need money to finance new, more environmentally friendly activities. This chapter shows how to involve civil society and more specifically citizens in the financing of this energy and sustainable transition, through the process of ‘crowdsourcing’. Unfortunately, the involvement of citizens in finance has been discarded for several decades in order to avoid any ethical questioning of the sector. Indeed, citizens are well known for challenging and informing about potential abuses of certain institutions. However, the sustainability of the sector must pass by more ‘accountability’ of the actors who compose it in front of these societal stakes. While many think that make economic, social and environmental issues cannot coexist, the history of finance suggests the opposite. There have already been several experimentations of more responsible financial tools. The financial sector’s commitment to human-scale projects that bring about societal innovations is essential in order to reach SDGs. The crowd allows a better representation of civil society for a better efficiency in the financing provided. During these support and financing phases, the projects financed are qualified as ‘collective’ as several stakeholders work in the formalization, start-up and monitoring of their activity. In the end, isn’t the role of finance to be a tool at the service of entrepreneurial projects carried out collectively by all parties? Responsible financial actors—for example, ethical finance, participatory finance (or crowdfunding) and solidarity finance—even if they are not numerous enough, demonstrate that an alternative exists. This type of finance has integrated citizen participation for a long time and offers sustainability prospects to the financial sector. In this chapter, we will show that this citizen-based approach could provide a basis for the financing of SDGs.

Glossary

Information asymmetry:

Information asymmetry is a concept in economics that describes a lack of information between parties that does not allow for informed decision-making. The risk of information asymmetry leads to additional costs necessary to verify or obtain information before making a decision.

Common good:

In economics, we speak of a common good when a good is non-excludable (everyone can use it) and rival (when it is used, it is reduced). The specificities of a common good raise many questions about its use: its use cannot be forbidden, but if it is used too much, it degrades and may even disappear (the climate is considered a common good).

Citizen:

A citizen is a person who has been granted citizenship to participate in the civic life of a state organization. Citizenship or civic behavior occurs when a citizen puts the general interest before his or her own individual interest.

Crowdsourcing:

Crowdsourcing is a process initiated collectively by a group of citizens (often referred to as a crowd) in order to initiate a collective intelligence around a project or even an organization. Crowdsourcing offers more flexibility, speed and transparency in exchanges, thanks to new technologies.

Direct democracy:

Direct democracy is the democratic expression of citizens who can express themselves directly, without intermediaries. These forms of democratic expression can exist in some countries, such as Switzerland, where citizens are regularly asked to make decisions through popular referendums.

Representative democracy:

Representative democracy is a form of citizen expression that is organized with representative intermediaries (citizens will vote for representatives who will thus represent them in the exercise of their functions). These elected citizens will constitute a representative assembly where they will make decisions concerning them.

Responsible finance:

Responsible finance encompasses a whole range of financial practices that aim to reconcile economic performance with social performance. Several currents of thought coexist within responsible finance: ethical finance, which seeks to combine economic performance with a social impact, solidarity finance, which sees finance as a means and not an end in the development of societal projects, and participatory finance, which seeks to involve a large number of citizens.

Ethical finance (or SRI):

Ethical finance (also known as Socially Responsible Investment, SRI) is a form of finance that seeks to combine economic performance with social impact through the construction of financial and extra-financial indicators to help portfolio managers make ethical financial investment choices.

Participatory finance (or crowdfunding):

Participatory finance (called crowdfunding in English) is a form of finance that seeks out several citizens’ funds where the sum of small amounts will allow for a strong financial base. Its interest is to avoid financial intermediaries to organize directly fundraising by and with citizens.

Solidarity finance:

Solidarity finance is a form of finance that seeks to make itself accessible to people and/or organizations excluded from the traditional financial system. Its aim is to fight against financial exclusion through the development of solidarity projects (integration through economic activity, North-South solidarity, etc.).

Impact financing:

It is a form of finance that seeks to have a positive impact on society. It is advisable to define upstream the desired impact objectives with the implementation of measurement and evaluation tools. This approach should make it possible to evaluate the interest of the financing through its measurement throughout the life of the financed project.

Moral hazard:

Moral hazard is an economic concept that explains a situation where each party does not have the same type of information, which can lead to different behaviors with respect to the situation.

Societal value added:

Added value means the increase in value of a good or service over a period of time. When we talk about societal value added, we are talking about an increase in the societal value of a good or service over a period of time.

VSEs, SMEs and MID-CAP ENTERPRISESs:

VSEs are Very Small Enterprises with 0–19 employees. SMEs are Small and Medium-sized Enterprises with 20–249 employees. MID-CAP ENTERPRISESs are Intermediate Size Companies with 250–5000 employees.

Integration through economic activity:

Integration through economic activity (IAE) is an approach that consists of integrating people in situations of exclusion (people who are very far from employment) in order to facilitate their social and professional integration through their work.

Civil society:

Civil society includes all forms of structured (such as associations or NGOs) or unstructured (such as crowd movements) citizens’ organizations that are part of socially driven collective interest actions.