In the first part of my article, I share the importance of testing and refining your essential core business model and how to juggle the two sides of an Islamic Crowdfunding marketplace. Read Part 1 here.
My third and final point is probably the biggest challenge for Islamic Crowdfunding startups.
3. The boring stuff that really really matter
It is noteworthy to inform that compliance is a major consideration. You need to look into KYC (know your client) matters to prevent abuse of your platform for dubious transactions such as money-laundering. It is also essential to implement the necessary corporate governance protocols and guidelines to protect both the crowd and your company. For those not familiar with such matters, these can, therefore, be a major challenge.
Some platforms may engage in either regulated financial activities or have activities that fall in a regulatory grey-area. Different financial regulators treat crowdfunding differently, especially for investment crowdfunding. Some are welcoming and supportive, whilst others are inflexible and are unwilling to compromise. In addition, there are also groups who prefer to remain silent and do not get involved at all!
Getting sound legal advice is highly recommended, but unfortunately, this may be costly. In the case of Ethis, we are really blessed – as a large law firm invested in us and this has immensely helped to boost our governance and compliance standards. To date, Ethis has communicated with 6 regulators, each with different levels of engagement. We are delighted to inform that we were recently awarded a full license for P2P financing by Securities Commission (SC) Malaysia. This process took a huge amount of resources, but the effort is well worth it, as being properly regulated brings strong credibility and opens up incredible and exciting opportunities for business expansion. Fortunately, I believe that the time for Regtech going mainstream is just around the corner, and this will make compliance and regulatory reporting cheaper, easier and all-around better.
4. Last but not least, of course, is Shariah compliance.
I strongly recommend either having external professional Shariah advisors or at least one in-house Shariah officer. There are many nuances and considerations for Shariah in finance that the ordinary practising Muslim may not be aware of. My own experience is that having both are important, as in-house Shariah officers understand the business better and thus they can be an effective bridge with the external Shariah advisors. Using the name of Islam is a huge responsibility, and experts must be brought in to ensure full compliance with the principles of Islam.
What is your crowdfunding idea? Do share in the comments below.