Equity-based Islamic crowdfunding in Malaysia: a potential application formudharabah

Muhammad Shahrul Ifwat Ishak and Md. Habibur Rahman

Qualitative Research in Financial Markets, 2021, vol. 13, issue 2, 183-198

Abstract: Purpose - This paper aims to explore the potential application ofmudharabah(silent partnership) as an investment instrument through an Islamic crowdfunding platform. Design/methodology/approach - This is a qualitative study in which semi-structured interviews were carried out with several experts regarding the application ofmudharabahin Islamic crowdfunding. To achieve the purpose of this study, the data is analysed based on thematic analysis. Findings - The findings reveal that even though Islamic crowdfunding could be an efficient platform through financial technology (Fintech),mudharabahis not an entirely ideal instrument, particularly for equity-based Islamic crowdfunding because of its high risk. These include fraudulent projects, insufficient regulations to protect investors’ money and the structure ofmudharabahitself in which it is in the form of profit-sharing contract. However, the risk can be mitigated by using Fintech as a way to closely monitor the project, enhancing regulatory aspects to protect investment funds, enhancingmudharabahpractice and creating awareness among all involving parties in terms ofmudharabahphilosophy. Research limitations/implications - This study is limited because it focuses on the current practice of Islamic crowdfunding in Malaysia, given that it is still a new industry. Currently, there is only one Islamic registered equity crowdfunding platform. Also, as the number of interviewees in this study is limited because of purposive sampling, the findings may be considered the result of an exploratory study. Practical implications - An equity Islamic crowdfunding platform based onmudharabahcan be proposed, particularly to support micro enterprises in which they involve small capital. Also, this model can be considered for less risky ventures such as investment in food industries or technology sectors. Social implications - MudharabahIslamic crowdfunding model could potentially support local businesses, especially for start-ups. By channelling money among society, it is not only creating a wealth circulation among society, which is one of the Sharīʿah objectives in finance, but it also promotes mutual cooperation and kindness among society members. Originality/value - While Islamic crowdfunding is not a new topic in research, it lacks empirical studies, particularly qualitative analysis. As this study engages with experts in Sharīʿah and crowdfunding regarding the potential application ofmudharabah, it highlights a fresh discussion both in theory and practice.

Keywords: Islamic finance; Mudharabah; Islamic crowdfunding (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:qrfmpp:qrfm-03-2020-0024

DOI: 10.1108/QRFM-03-2020-0024

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