Analysis of Reward-Based Crowfunding in Islamic Finance

Debt crowdfunding: Lenders grant a loan and expect the repayment of the capital along with the distribution of profit. These platforms rely on Islamic financial contracts and processes without involving interest, such as the use of Murabaha and Ijarah.

Table 1. Shariahcompliant Crowd Funding Models and Instruments

 

Source: Marzban & Austay, (2014). 

In the case of reward-based crowdfunding, potential beneficiaries include microfinance, small enterprises and startups. While microfinance and startups are generally financed through pure equity, small enterprises, notably family businesses, prefer to purchase back their own shares rather than being acquired by outside parties, therefore all of them use sale akad.

According to the study, the results show that both fintech and crowdfunding are still in their early stages in the Islamic world, with a relatively small number of participants, remain closely oriented to start-ups, and there are not enough investors while adopting shariacompliant methods and procedures for finding investors and selecting business ideas (Biancone et al., 2019).

CONCLUSION

In summary, reward-based crowdfunding is used to fund microfinance, small and medium businesses, and startups. Crowdfunding based on rewards can also be used to fund a wide range of initiatives, works, creative ideas, and projects. Based on the notion of social solidarity to reward or service ideas or projects, as well as the better allocation and utilization of financial resources. It is consistent with Islamic finance, which, if practiced properly, is seen as a revolution in financing techniques in the Islamic world.

Crowdfunding in the Islamic world continues to progress slowly, encountering several challenges. These challenges include technological limitations, slow processing of digital financial transactions, issues related to liquidity, and the relatively high living standards prevalent in the Gulf Cooperation Council (GCC) nations. 

However, it's clear that within the Islamic world, a community of innovative and entrepreneurial minds exists. For these individuals, crowdfunding provides a promising avenue to navigate away from the complexities of traditional financing methods. It offers a swifter, more accessible, and less risky alternative. The fusion of Islamic finance principles, crowdfunding, technological advancements, and the burgeoning Fintech sector presents a substantial opportunity. It can significantly enhance the entrepreneurial landscape within the Islamic world and contribute to fostering social and economic progress.

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