Delivery delays: Delays in delivery can have various impacts on funders, some of which could be detrimental to the sustainability and growth of crowdfunding.
Shariah Aspects of the RBCF Business Model
Islam emphasizes the principle of Halal (permitted activity) emanating from the Shariah, which governs all activities in the life of Muslims. The Islamic Finance, ideally, is an alternative way of financing based on ethical and socially responsible standards, which ensures fair distribution of benefits and obligations between all the parties in any financial transaction.
The crowdfunding carries these characteristics and provides the ground for new developments in the field, as it can use Islamic finance as an ethical and socially responsible tool to promote financing and development. Islamic finance and crowdfunding both conceptualize customers as investors and can potentially provide investment opportunities with higher returns. Investors take an equity stake in the project and gain returns based on the principle, which ensures a fair distribution between shareholders and entrepreneurs.
The Sharia-compliant crowdfunding invests in halal socially responsible projects/products, shares the risks of the investment, and is characterized by the absence of an interest rate. The originality of product-based crowdfunding lies in the fact that in return, the investor does not receive interest, but the product itself, which promotes the creation of new products and furthers innovation. Investors that pay for a product they wish to have can track the production process and see how their money is spent through weekly updates on the progress of the projects.Â
Transparency is a very important part of the project, and a direct link between the customer and the workshop owner is established from the beginning. Islamic finance to comply with the Quran requires socially responsible investment, with a real impact on the community.
Sharia prohibits interest on loans and speculation.
There are four types of Sharia-compliant crowdfunding platforms:
Donation-based crowdfunding: In the case of donation, donors pay relatively small amounts to support a nonprofit project or a social development initiative through Zakat or Sadaq.
Reward-based crowdfunding: Donors contribute small amounts of money in exchange for a reward after the completion of the project. The reward is typically a product generated by the project itself.
Equity-based crowdfunding: At this stage, investors provide sums of money and, in return, become shareholders. They share in the profits and losses, similar to the concept of Musharakah.
