Islamic Crowdfunding VS Islamic Banking & Finance

#EthisEduSeries Ep 2: Islamic Crowdfunding VS Islamic Banking & Finance

Welcome to the second episode of the Ethis Educational Series.

Today, we’re going to talk about crowdfunding again but more on what features of crowdfunding, we believe, are Islamic in nature. After that, we want to talk about how the Islamic Crowdfunding industry has created a positive disruption in the Islamic Banking and Finance industry. Lastly, we’re going to talk about how that positive disruption can be a good thing and can eventually lead to a complementary contribution to the Islamic Finance industry.

So first and foremost, what is it that we feel is Islamic about Crowdfunding?

1- Firstly, crowdfunding doesn’t necessarily have to be interest-based. Banking by nature is interest-based in so many different ways that Islamic Banking had to be invented. Crowdfunding, however, is not necessarily interest-based. Therefore, it can be manipulated and modified into so many different forms to easily become Islamic.

2- Secondly, crowdfunding is something that is community-based and Islam is very much about the community. In a Hadith, Prophet PBUH said:

 يد الله مع الجماعة” رواه البخاري”

“The hand of Allah (support of Allah) is with the Jamaah (with the group)”

Community building is part of crowdfunding, and a strong community usually does very good crowdfunding.

3- Lastly, crowdfunding is something that is collaborative; people share in online crowdfunding platforms, which helps people to create more wealth circulation. When there is more wealth circulation, the economy grows.

The next question is: What is Islamic Crowdfunding doing today?

Traditionally, people would put their extra funds into different kinds of wealth management tools or vehicles. You would have your mutual funds, your stocks (not Islamic) and also your bonds. In the Islamic industry, we’ve invented ‘Sukuk’ which is an alternative to those tools. Unfortunately, this is only available to the higher levels of income. In addition, some are static and would need a long period of investment.

Islamic Crowdfunding, however, has created new kinds of opportunities that let people invest online in medium or short-term projects where they get to see and know the people that they are investing in.

So, this has caused a little bit of disruption in the Islamic Finance industry. In Wealth Management and in other things, people are asking: “Are these guys going to eat our lunch?”

But, not to worry. Islamic Crowdfunding has been positive in this disruption and it’s made Islamic Banks and Institutions to start thinking about how they too can optimize the Digital Economy, which is very important. At the same time, we believe that the Islamic Crowdfunding platform will be complementary to the Islamic Banking and Finance Industry.

How?

What we will do is to help those small businesses, or SMEs, that want to raise money but are not qualified for bank financing. They will come to the crowdfunding platform, and if they are successful, they will be able to build a broader base of investors, get greater exposure, and be able to grow. And later on, they will be able to qualify and be strong enough to hopefully get financing from Islamic Banks or Islamic Financial Institutions.

This, we believe, is the contribution of the Islamic Crowdfunding platforms like Ethis.co. What we do is build up those smaller players, so that they can become bigger players in the future.

So, this is all that we have to share with you today. There’s so much coming up in the future. If you would like to ask any questions or give any comments, please share them with us in the comment section below.

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Check out our next episode here!

Thank you very much