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A look at Shariah-compliant crowdfunding

May 03, 2017 • By TAB team

Islamic Finance assets were estimated to be worth $2 trillion in 2015 and this figure is projected to grow to $3.5 trillion by 2021.

Islam is also an old religion, which began in the 6th Century. Things that are large, old, traditional and slow-moving tend to seem regressive on the surface, and yet, ancient religions and social customs survive the flux of ages precisely because of these qualities. They are more adaptive and durable than they seem.

Islam has a long and proud history of embracing modernity, driving human advancement forward in the fields of culture, medicine, technology, finance and social welfare. Indeed, Islamic finance is based on ethical and socially responsible standards, ensuring fair distribution between all the parties in any financial transaction. It follows the rules of Shariah, the Islamic law based on the Quran and the Sunna. Shariah identifies interest (riba), uncertainty (gharar) and gambling (maysir) as elements that should be avoided in business.

Emad Mostaque, Co-CIO at Capricorn Fund Managers UK, explains, “Muslims currently mostly invest in conventional finance products due to lack of Shariah-compliant alternatives. As there are more Shariah-compliant options, more cash will flow towards Shariah-compliant investments.”

Islamic Finance assets were estimated to be worth $2 trillion in 2015 and this figure is projected to grow to $3.5 trillion by 2021. Mr. Mostaque points out, “The rules around what makes a Shariah-compliant investments are an example of how Sunni and Shia groups aren’t that different, as they share the same rules”. This common ground will facilitate the growth of the market in the years to come.

The Islamic financial services market is huge and it’s growing. So is the opportunity for crowd finance to cater to that market. In fact, a recent report by Ernst & Young noted that fintech has the potential to attract 150 million customers to the Islamic banking sector over the next 5 years.

Crowdfunding has been slow to adapt to this growing global community and policymakers in the Muslim world have been slow to recognise its potential. Regulators everywhere should be thinking seriously about building Shariah compliant crowdfunding ecosystems that facilitate access to capital and accelerate economic growth – not just those in Muslim nations.

Crowd finance has an opportunity to play a key role at the grass roots level by opening up access to capital for individuals and companies seeking to raise and deploy funds at attractive rates. Islam places unique limitations on how its followers manage their finances, conditions that are challenging to accommodate via conventional finance. This means there’s an even greater need for choice and transparency – creating a big opportunity for crowd finance to step in.

In fact, crowdfunding compliments the principles of Islamic finance, particularly its focus on socially responsible distribution of wealth and shared risk and reward. They both place a strong emphasis on transparency, mutual involvement and trust. And they share a focus on socially constructive outcomes and economic development.

So where are all the “Islamic Crowdfunding” platforms?

The truth is that crowd finance has been slow to cater to the needs of Muslims. That is now changing, with a string of platforms operating across the globe, but much works still needs to be done.

Singapore-based Kapital Boost are addressing the shortage of attractive Islamic-based investments in Southeast Asia. Beehive, the first P2P lending platform to be regulated in MENA, is already getting good traction. And the most prominent donation-based crowdfunding platform is LaunchGood in the US, the so-called “Kickstarter of Islamic crowd funding”, whose tagline is “crowdfunding incredible Muslims.”

Closer to home, there’s also a lack of options for Muslims looking to access the crowd economy. Islam is the second largest religion in the UK, with a population of 2.8 million people. And yet, there are only a small handful of Shariah certified fintech companies in the UK.

One such company is London based Yielders, who specialise in crowd financed property investments. Another player is QardHasan, recently launched by established player EDAID under the banner of the UK’s first Shariah-compliant crowdfunding platform.

The market is slowly developing, but it will take time for it to achieve sufficient uplift to constitute a meaningful global ecosystem. Development of domestic financial markets and regulatory frameworks in the Middle East and Asia needs to come first, laying the foundations for more progressive forms of capitalism.

With the right levels of financial engineering and public awareness, Islamic finance and crowdfunding have the potential to be a potent combination that can channel capital to millions of Muslims around the world.

You can monitor the state of the market and track developments in Islamic finance via Crowdsurfer.

Sources

  • http://www.npr.org/sections/thetwo-way/2015/04/02/397042004/muslim-population-will-surpass-christians-this-century-pew-says
  • http://www.salaamgateway.com/en/food/story/report_state_of_the_global_islamic_economy_201617-salaam03102016111130/
  • http://www.ey.com/em/en/industries/financial-services/banking---capital-markets/ey-banking-in-emerging-markets
  • https://en.wikipedia.org/wiki/Islamic_Golden_Age
  • https://www.scribd.com/document/328438435/Islamic-Finance-and-Crowdfunding
  • http://crowdfundcapitaladvisors.com/sharia-compliant-crowdfunding/
  • https://kapitalboost.com/
  • https://yielders.co.uk/about-us/ethical-sharia
  • https://www.qardhasan.com/
  • https://www.crowdsurfer.com/home/