crowdfunding

Risk-Sharing Through Shariah-Based Equity
Crowdfunding

The implementation of
the concept of risk sharing, through mudarabah and musharakah seem to be less
favorable by the Islamic financial institutions simply because of the high
risks associated with them. Islamic banks reluctant to implement such concept
as the Islamic banking framework in Malaysia and elsewhere is still based on
conventional banking infrastructure, which create some legal barriers and
stakeholder barriers. To mitigate the risks, it may include incentives from the
government on the development of new products and the establishment of special
entities by the Islamic banks to offer such products with the support of the
Central Bank.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

Crowdfunding
aims to alleviate financial difficulties for particular group of people or
entrepreneurs who need financial assistance, which is a noble exercise and
reflects the principles of mu’amalat (facilitating transactions) in Islam. The real
essence of mu’amalat in Islamic commercial law promotes the dealing between two
or more parties to buy or/and sell products or services by referring to Shariah
principles and emphasizing fairness among each other in the agreement made. Nevertheless,
there are three main differences between conventional and Islamic crowdfunding:
the Syariah-compliant crowdfunding that invest in halal socially responsible
projects / products, share the risk of investment, and characterized by the
absence of interest or usury. Hence, they developed Shariah-based crowdfunding
models and instruments as illustrated in Table
3.

Table 3 shows the various types of Islamic financial instruments
that can be applied in the crowdfunding models; however, we will focus on the
equity model and two Islamic financial instruments: which are Mudarabah and
Musharakah. Although these two modes of profit and loss sharing partnership are
not commonly used in modern financial instruments utilized in Islamic banks,
however, they are the prime candidates for equity crowdfunding.

x

Hi!
I'm Carol!

Would you like to get a custom essay? How about receiving a customized one?

Check it out
x

Hi!
I'm Nicholas!

Would you like to get a custom essay? How about receiving a customized one?

Check it out