Crowdfunding, as an alternate source of finance, has yet to gain traction in Hong Kong although the proposition is becoming increasingly popular among startups in some other developed economies, particularly the US and the UK.

However, this could change as the government is making great efforts to promote the SAR as a global startup hub in fierce competition with neighboring cities, including Shenzhen, Singapore, Seoul and Taipei.

Hong Kong has the advantage of being a free-market economy that's often ranked as one of the most attractive places for doing business. But, the difficulty in securing financing from traditional sources is widely considered a major factor in holding back young entrepreneurs from starting their own businesses.

It's the same problem facing other aspiring startup hubs in the region. Their respective governments are seeking to address the issue by lavishing direct subsidies and numerous incentives on startups of their choice. Abiding by the free-market principle, the government is not expected to match the generosity of its counterparts in other regional economies.

In Hong Kong, commercial banks don't usually make loans to startups without sufficient property collateral, and venture capitalists are mostly interested in investing in enterprises that can produce solid earnings records going back at least a couple of years. The seed money of a typical local startup comes mainly from the entrepreneur's own savings and borrowings from relatives and friends.

In recent months, an Internet publishing house specializing in highly political-centered news reporting is said to have successfully raised several million dollars through crowdfunding by targeting like-minded contributors and readers. This may be an exceptional case. But, crowdfunding is being seen by more and more business leaders as a credible capital source in coming years.

The Securities and Futures Commission (SFC) - Hong Kong's market watchdog agency - is reported to be studying a report by a government-appointed advisory body on establishing a special regulatory framework to protect the interests of lenders and specify borrowers' obligations in crowdfunding.

Without proper regulations that are supervised and enforced by a credible agency like the SFC, crowdfunding doesn't have a chance to take off.

(HK Edition 03/31/2016 page9)