There is an urgent need to solve the financing problems of small and medium-sized enterprises and micro enterprises through innovative equity crowdfunding, said Yao Yudong, former head of the financial research institute at the People’s Bank of China, Yicai.com reported.

Between 80% to 85% of financing is provided through the banking system, which is faced with the practical task of preventing bad debts and controlling risks. Thus, it is increasingly difficult and expensive for companies to raise funds, Yao pointed out.

Yao thinks the traditional finance industry is divided into public and private fundraising, however, it is possible to open up new areas for equity crowdfunding within private equity investors.

Yao also emphasized that the key to developing the industry in a healthy way is for crowdfunding platforms to never engage in money, such as setting up a capital pool.

In addition, those platforms should not provide any kind of guarantee or implicit guarantee, otherwise it will trigger future problems such as rigid redemption.