There can be little doubt of the impact that crowdfunding has made in recent times. CRAIG MOORE thinks that it’s logical that the combination of both Islamic finance and crowdfunding, ie Islamic crowdfunding, has the potential to be a real game changer.
The global crowdfunding industry was valued at US$34 billion at the end of 2015 according to the Massolution Crowdfunding Industry 2015 report and is forecasted to grow at a compound annual growth rate of 26% during the period of 2016-20 according to Research and Markets’s Global Crowdfunding Market 2016-2020 report. Islamic finance is also enjoying strong growth, with total Islamic banking assets valued at US$1.35 trillion and predicted to reach US$2.6 trillion by 2020, according to the State of the Global Islamic Economy 2015/16 report by Thomson Reuters.
Islamic crowdfunding is essentially crowdfunding developed and delivered in line with Shariah principles. The growing Muslim population is young, tech-savvy and constitutes around 23% of the global population, according to Pew Research Center. Yet according to the World Bank, around 1 billion Muslims are unbanked so there is significant financial power to be yielded. Islamic crowdfunding is one of the rising fintech opportunities to connect latent financial power with considerable economic and societal impact.
Review of 2016
2016 has been a seminal year for Islamic crowdfunding and one in which we really saw proof of concept. There has been an emergence of different models of Islamic crowdfunding platforms across a wide geography. Debt and equity-based platforms have provided a new stream of funding to SMEs, while investors have access to a new, diversified asset class and healthy returns. Donations and rewards-based platforms have been a powerful force for good in different communities. The impact has been far-reaching and many of these platforms are already delivering a host of benefits, not only to their users, but to society as a whole. One example is a real estate crowdfunding platform based out of Singapore, which contributed to the building of 5,000 affordable homes for low-income people in Indonesia. This is inspiring evidence of the influence of crowdfunding platforms and the tangible community benefits they can deliver.
The past 12 months have also seen a dramatic increase in the general awareness of Islamic crowdfunding. For an industry that was unknown two years ago, there has been a real surge in media coverage and conversation. The establishment of the new Islamic Crowdfunding Alliance is evidence of the appetite for global Islamic crowdfunding, as are the awards ceremonies now recognizing the industry’s biggest contributors.
2016 has been an exciting and encouraging year, with many new market entrants, greater exposure and several exciting success stories, setting a positive tone for the next 12 months.
Preview of 2017
2017 looks set to be a year of growth and consolidation for the global Islamic crowdfunding industry. The many platforms that have been established now need to build scale and grow.
As with any new industry, it will be critical to continue to educate the market and build awareness of the societal benefits it can bring. Islamic crowdfunding is based on ethics and values and appeals to an audience of both Muslims and non-Muslims motivated by the broader concept of ethical finance. It will be key to engage and educate the audience so that they embrace the concept, drive word of mouth and actively contribute. A continual frustration to many commentators involved in traditional Islamic finance is the lack of harmonization, especially at a global level, around structures and regulations. While crowdfunding’s technology-centric foundations increase the opportunity to expand product offerings across jurisdictions by exploiting operational efficiencies and agile deployment practices, it’s important that the same issues affecting traditional providers are minimized, where possible, to nurture the growth of the industry. Moving toward standardized Islamic finance will be an important step to maximizing the comprehension of the concept and optimizing participation.
As a new industry, regulation will need to be outlined and implemented. While a number of countries have been proactive in providing regulation or regulatory guidelines, many will need to define their regulation of crowdfunding. It is important that regulations are shaped in collaboration with industry players to build a supportive framework that helps guide and nurture the industry while protecting consumer interests. The role of the government is also key in driving growth. Government initiatives and endorsements that facilitate the establishment of crowdfunding platforms, raise awareness and encourage participation will all have a positive impact on the adoption and future success of crowdfunding.
Conclusion
The Islamic crowdfunding industry may still be in its infancy but there is a good deal of optimism for the future. Activity from the past year alone demonstrates that there is a lot to gain from crowdfunding and the potential benefits to the community, the economy and society cannot be underestimated. With a potential global scope and evident consumer demand, the 2017 outlook for Islamic crowdfunding is looking bright indeed.
Craig Moore is CEO of Beehive Group DMCC. He can be contacted at [email protected].