Crowdfunding: Development of Private Investment in the

Agricultural Region

Shamil Arslanov

and Karina Baliyants

Institute of Social and Economic Research of the Dagestan Federal Research Center of the RAS, Makhachkala, Russia

Keywords: Investments, crowdfunding, region, financial instruments, digital economy.

Abstract: The aim of the study is to determine the main directions and problems of the development of crowdfunding

in the regions of the Russian Federation, as well as to determine the prospects of the tools of crowdfunding

in the agricultural sector of the economy. The possibilities of developing crowdfunding in agriculture in the

region are investigated. The main problems of the development of crowdfunding technologies in modern

conditions are identified, the features of the implementation of crowdfunding investments are established with

the specification of the specifics of legal regulation and opportunities for the development of crowdfunding.

The accompanying risks inherent in crowd investments are considered. According to the results of the study,

the features and specifics of the crowdfunding tools as an alternative mechanism for the development of

private investment are established. The results of the study can be applied both in the course of the formation

and implementation of regional socio-economic policy as a whole, and its structural elements separately.

1 INTRODUCTION

Today, the Republic of Dagestan, being the

southernmost region of the Russian Federation, with

a population of more than 3 million people and an

area of 50.3 thousand square kilometers, being a

predominantly agricultural region, has only a 20

percent share of agriculture in the Gross Regional

Product.

Such a small share of agriculture in the GRP

indicates that the agricultural sector of the Republic

of Dagestan is in dire need of an influx of investment.

The lack of financial and investment funds in the

republic is explained by the current unfavorable

investment climate.

The reasons for the unfavorable investment

climate of the Republic of Dagestan are primarily:

(Arslanov Sh, 2020)

 high risks of investment activity;

 low level of regulatory and legal regulation of

investment activities;

 lack of investor protection mechanisms and

investment processes;

 uncertainty of state mechanisms for

supporting investment projects.

https://orcid.org/0000-0002-5461-8610

https://orcid.org/0000-0002-6407-7774

The existing regional experience of attracting

investment in agriculture cannot boast of successful

projects. Rather, on the contrary, there are frequent

court proceedings on "priority" regional investment

projects.

In such conditions, even those who have

successfully started their activities, the enterprises of

the agricultural industry, finding themselves in a

difficult situation, do not have a real opportunity to

use the mechanisms of support and recovery from the

state authorities. A striking example of this is the

recently announced bankruptcy of the Kikuni plant.

The current situation, actualizes the search for

new innovative opportunities to attract private capital

as an investment resource that allows the

development of agriculture in the region. (Dokholyan

S.V., 2020)

In our opinion, such investment tools should be

crowdfunding technologies.

2 MATERIALS AND METHODS

Considering crowdfunding and crowdinvesting

(Ahlers G., 2015) as a tool for improving the

Arslanov, S. and Baliyants, K.

Crowdfunding: Development of Private Investment in the Agricultural Region.

DOI: 10.5220/0010693300003169

In Proceedings of the International Scientiﬁc-Practical Conference "Ensuring the Stability and Security of Socio-Economic Systems: Overcoming the Threats of the Crisis Space" (SES 2021),

pages 95-98

ISBN: 978-989-758-546-3

agricultural sector of the region, it is necessary to ask

the following question: what is the best way to

organize and implement crowdfunding technologies

in the agriculture of the republic?

The solution to this issue is not new and there is a

positive experience of other regions.

For example, the project "LavkaLavka", created

by Boris Akimov, deserves attention. Which is the

embodiment of the implementation, based on

crowdfunding technologies, of the interaction of

agricultural producers and end (urban) consumers.

The LavkaLavka project began in 2009 when B.

Akimov organized a digital resource for the sale of

natural village food. The essence of the project was to

give the residents of the metropolis the opportunity to

buy natural products directly from the farm, so to

speak "first-hand".

The project made it possible for any farmer to

present their products on the site, subject to its

thorough verification and certification. The idea of

reducing intermediaries between the consumer and

the producer of agricultural products became

profitable, as the consumer received complete

information about the quality of the product, and

producers received a new market where customers

were willing to pay for natural products.

The LavkaLavka project was implemented

without attracting bank loans, based on the collection

of financial funds among the farmers and buyers

themselves. That is, B. Akimov himself acted as the

organizer, and buyers and farmers financed a

mutually beneficial project.

Organizationally, "LavkaLavka" is a limited

liability company, in which private investors own

49%.

Of the fee announced by the organizers in the

amount of 5 million rubles, one half was financed by

potential buyers, and the second by farmers. Each

funded project received a 20% discount, and at the

time of opening, the store had about 5 thousand such

customers.

Another example of creating a crowd-investment

platform in the field of agriculture is the Internet

portal "Rublemania". Which, according to the

creators, should become the first investment platform

in Russia, allowing to direct the collected private

investments to the revival of the country's agriculture.

The project is implemented only on the basis of

attracted funds from private investors, implementing

the principle of "profitable investment in agriculture".

According to the project "RubleMania",

absolutely any investor automatically becomes a co-

owner of the project in which he invests, and,

according to the organizers, receives a guaranteed

profit of 18% of the investments made.

It should be noted that crowdinvesting and equity

crowdfunding are innovative and at the same time

alternative financial instruments for generating

investment resources based on attracting an unlimited

number of investors (Belleflamme P., 2014).

Crowdfunding, in our opinion, should become

very popular in the Republic of Dagestan, because as

an alternative financial instrument, it allows you to

finance startups, as well as all "young" projects that

need additional investment, without incurring

burdensome interest.

At the same time, an investor who invests his

funds in projects implemented on the basis of

crowdfunding technologies gets the opportunity to be

involved in a large and significant project (Bi S.,

2017).

Therefore, crowdinvesting platforms are also an

attractive opportunity for anyone who wants to

receive passive income, since the so-called

"promising" level of profitability of projects on such

platforms significantly exceeds the profitability of

other types of passive income.

The development of crowd technologies in

agriculture of the republic, in our opinion, will have a

very favorable impact on the entire socio-economic

system of the region, and will certainly contribute to

the achievement of the following strategic goals and

objectives:

 development of small and medium-sized

businesses in the agricultural sector of the economy;

 establishing the production and consumption

of domestic agricultural products (which will

accelerate the process of import substitution and

reduce the consequences of international sanctions).

 increasing the investment attractiveness of the

region.

At the same time, it should be remembered that

the revival of agriculture in the region is a very labor-

intensive and costly process that cannot be

implemented without attracting the necessary amount

of funding.

Therefore, the use of crowdfunding tools should

be exactly the starting point for the rise of agriculture

in the region, allowing you to create innovative

projects for small and medium-sized businesses with

the maximum participation of investors-consumers of

agricultural products.

The development of alternative innovative

financial instruments, in the context of the

digitalization of the entire global economic space, is

gaining a significant role in the investment process

(Brown T.E., 2017). And, accordingly, requires its

SES 2021 - INTERNATIONAL SCIENTIFIC-PRACTICAL CONFERENCE "ENSURING THE STABILITY AND SECURITY OF

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own significant organizational, economic and

regulatory development, which allows to exclude the

risks of dishonesty in the implementation of

investment activities.

Let's take a closer look at the problems associated

with the implementation of crowd technologies as a

tool for attracting private investment resources.

The main issue of investment is the issue of

working out investment risks. Crowd technologies,

being low-risk, do not completely exclude the

investment risk that investors take on (Buttice V.,

2017).

In this context, crowdfunding does not change the

principles and mechanisms inherent in investing

(with the exception of projects based on donations).

Accordingly, an important problem of the

development of crowd technologies is the risks

characteristic of innovative projects. For example, the

organizers of an investment project bear the risk of

borrowing an original business idea. This is due to the

fact that it is necessary to voice your idea in order to

attract financial resources for its implementation. In

this aspect, the principle of transparency and

openness creates the risk of unfair use of other

people's ideas and technologies.

The same principle of openness precludes the

protection of an idea through the protection of both

industrial and intellectual property rights.

If you look at this problem from the other side, it

is unlikely that a large number of projects will be

announced on digital platforms that need to protect

the uniqueness of the idea and technology. Existing

projects show us that in most cases, projects that bring

social benefits are implemented with relatively small

investments. The average income of Russians and

their lack of desire for technical innovation make it

almost impossible to finance technologically

complex projects.

However, the possibility of participating in a

small part of technologically complex projects based

on digital platforms is not excluded, in this case,

crowdfunding allows large companies to attract

additional sources of funding.

In this case, the use of crowdfunding technologies

as a method of co-financing sufficiently large and

ambitious projects will be considered as a competitive

advantage in attracting investment resources (Chan

R., 2017).

Quite another thing is the risks of investors, which

are inversely proportional to the investor's ability to

predict the success of the project and prospects.

At the same time, digital platforms are not

responsible for the feasibility and success of the

declared project, since this is not included in the list

of their tasks and powers (Guerini M., 2016).

This does not exclude, but rather encourages the

desire of the organizers of digital platforms to

thoroughly understand the proposed project together

with its organizers, in order to make sure of the

reliability of their intentions. Only this approach

allows, to date, to avoid dishonesty in the field of

crowd investment.

Control over the use of the collected financial

resources is not exactly a risk, but only an actual issue

that needs its own regulatory and legal elaboration.

The lack of legal regulation in this area will sooner or

later lead to problems.

At the same time, digital platforms that implement

crowdfunding activities are not subject to the Law

"On Countering the Legalization (Laundering) of

Proceeds from Crime and the Financing of

Terrorism", which practically excludes the influence

of special services on their activities.

Of course, the development of crowd technologies

is a stimulating factor for the development of the

economies of the regions of our country. Therefore,

competitive advantages will be given to those regions

that can form a sufficiently successful digital

investment potential, and we are talking not only

about small and social projects, but also rather

significant and large regional projects.

With regard to the regional aspect of

crowdfunding, it can be argued that they will achieve

the following qualitative indicators:

 increase the investment activity of all

segments of the population;

 improve the investment potential of the

region.

This makes the development and popularization

of crowd investments in the Russian regions a

strategic priority for their investment and digital

development. And it creates an objective need to

make changes in the legal and economic spheres of

the region, which in turn will allow us to solve the

following tasks:

 determine the possibilities of crowd

technologies in relation to their practical application;

popularize crowd technologies in society and the

business community.

3 RESULTS AND DISCUSSION

It is determined that the development of modern

crowd investments is a promising tool for improving

the economies of the regions of our country. The

absolute importance of alternative financial

Crowdfunding: Development of Private Investment in the Agricultural Region

instruments lies in the ability to implement vital

financing for startups and "young" projects that need

investment, without incurring burdensome interest.

The necessity of using the tools of crowdfunding

in agriculture as a starting point for its rise, and a

mechanism for creating innovative projects of small

and medium-sized businesses with the maximum

participation of investors-consumers of agricultural

products is justified.

The tasks that will be achieved through the

introduction of crowd technologies in the agriculture

of the region are identified, which include:

 development of small and medium-sized

businesses in the agricultural sector of the economy;

 establishing the production and consumption

of domestic agricultural products (which will

accelerate the process of import substitution and

reduce the consequences of international sanctions).

 increasing the investment attractiveness of the

region;

 to develop the investment potential of the

region, through "digital" platforms for the formation

of investment resources.

The factors hindering the development of

crowdfunding both in Russia and its regions are

identified, the most significant of which is the

regulatory unsettled nature of crowdfunding, which

often leads to their tacit prohibition.

4 CONCLUSIONS

In the current realities of regional economic

development, alternative crowdfunding tools are a

very promising mechanism that can attract significant

investment funds in all sectors of the economy.

Stimulating the development and popularization

of crowdfunding tools in the regions of the Russian

Federation should become a strategic priority for the

intensification of their investment activity.

At the same time, the lack of timely regulatory

regulation of investment processes in the regions is

the reason that some of the tools of crowdfunding

remain under an unspoken ban.

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SOCIO - ECONOMIC SYSTEMS: OVERCOMING THE THREATS OF THE CRISIS SPACE"