Crowdfunding Opportunities and Barriers in Developing Economies: The Case of Georgia

This study examines the role of crowdfunding as an alternative financing mechanism in Georgia’s evolving financial ecosystem. Given the country's banking sector dominance and limited access to diverse funding sources, startups and SMEs face considerable challenges in securing capital. While crowdfunding has gained traction globally as a means of democratizing finance, its adoption in Georgia remains underdeveloped. This paper explores the barriers hindering crowdfunding’s growth, including regulatory gaps, low financial literacy, and a lack of public awareness. A comparative analysis with Lithuania (A country that has successfully integrated crowdfunding into its financial system) provides valuable insights into how regulatory support and market conditions shape alternative financing adoption. The research employs a mixed-methods approach, combining secondary data analysis and a comparative case study. Data from official Georgian and Lithuanian sources, alongside relevant literature, are analyzed to evaluate the factors influencing crowdfunding development. This research investigates key factors influencing crowdfunding awareness and SME growth, emphasizing financial literacy, reliance on traditional bank loans, and regulatory frameworks. The findings reveal that regulatory barriers and limited financial literacy are major obstacles to crowdfunding adoption in Georgia. Lithuania’s regulatory innovations, particularly the adoption of the ECSP Regulation in 2021, have significantly enhanced its crowdfunding ecosystem, leading to increased access to alternative financing for SMEs. In Georgia, the dominance of traditional banking further stifles alternative financing options, hindering entrepreneurial growth. Addressing the gaps in financial literacy, public awareness, and regulatory frameworks could unlock Georgia’s potential for crowdfunding. Lessons from Lithuania’s proactive policies suggest that regulatory reforms and public-private collaborations are critical to fostering a competitive and inclusive crowdfunding market. These results have significant implications for policymakers, financial institutions, and entrepreneurs seeking to enhance access to alternative funding sources. The paper concludes with recommendations for strengthening Georgia's investment infrastructure, promoting financial education, and integrating best practices from Lithuania to develop a more inclusive and competitive financial ecosystem. This study underscores the need for tailored strategies in Georgia to enhance financial literacy, diversify funding sources, and establish robust regulatory frameworks for crowdfunding. Future research should focus on longitudinal data collection and explore the socio-cultural factors influencing crowdfunding adoption in Georgia.