Islamic Crowdfunding VS Islamic Banking?

There have been a few articles recently about the banks supposedly worrying about Crowdfunding or P2P platforms posing a threat to their business.  

Crowdfunding has grown tremendously in recent years, and although a few steps behind the conventional platforms, we can now observe more Crowdfunding platforms using Islamic Finance structures or adopting a Shari'ah-Complaint or even Shari'ah-Based Approach. 

Crowdfunding has now entered the Islamic Finance industry. It is logically true that such community-based models are a perfect match for Islamic Finance. Should Islamic Banks be worried?

Let's me give you a snapshot of the existing Global Players:

I am the founder of EthisCrowd.com (Develop Social Impact Real Estate) & a soon-to-be-launched platform KapitalBoost.com (SME Asset financing).

[Update July 2016: We have consolidated our brands under EthisVentures.com, where we are building a family of #IslamicCrowdfunding platforms.]

Offhand, a few more prominent Islamic/Halal/Muslim-owned platforms that I know of include:

www.LaunchGood.com in the US (Islamic innovations), www.BlossomFinance.com in Indonesia (business micro-financing), and www.skolafund.com in Malaysia (education for low-income students). 

[Update April 2016: 9 platforms from across the world come together to form the IslamicFintechAlliance.com, which is now in stealth mode]

There is a mix of both reward-based as well as returns-based Crowdfunding, and the object of these Crowdfunding platforms are also diverse. Logically, if any of these platforms were to compete with the banks, it would be those that provide financing for Businesses and/or Real Estate.

Let me use a recent project launched by Ethis as a case study:

Kampung Islami Thoyibah is a large-scale affordable housing project in Greater Jakarta, Indonesia. It will eventually provide more than 1,200 homes (in phases) to those with poor or no housing.

Kg Islami & BNI Shari'ah YouTube: goo.gl/uP8OEI

The EthisCrowd community crowdfund seed capital to kickstart this project by purchasing land for 50 units and selling it to the developers, who are backed by a top-tier local Islamic Bank.

The developers have a good relationship with this Islamic Bank and have completed a few projects prior to this with the bank's support. View this TV Feature to understand better: goo.gl/uP8OEI

This time round, the Developers do not have sufficient liquidity. Crowdfunding is the catalyst that allows the developer to reach milestones needed for the bank to release more funding, and from this funding the developers purchase the land from PT Ethis, inshaAllah.

This deal is in our knowledge the first where Islamic Crowdfunding provides the impetus for Islamic Banking to kick in.

Our members earn a profit in 6 to 8 months through a Mudarabah (profit-sharing) agreement on our Murabaha (cost-plus trading) deal. If you're keen to find out more, see EthisCrowd.com.

This Case Study shows how instead of competing, Islamic Crowdfunding can in fact complement Islamic Banking.

The very reason why Crowdfunding exists and continues to grow is because it serves a market gap - a gap that the banks cannot or are unwilling to serve.

Banks are less nimble and flexible than crowdfunding, and crowdfunding can flourish if their projects are backed by the bank. Crowdfunding basically helps unbankable projects reach bankable status. When this happens, the capital from the banks can then allow the Crowdfunding investors to exit. We will thus have a situation where Crowdfunding facilitates more deals to reach and receive funding from the banks, and conversely the backing from the banks significantly reduces risk for Crowdfunding Investors.

What needs to be done is for Islamic Banks to partner with Crowdfunding platforms and synergise for mutual benefit.

Note that in the EthisCrowd Case Study I outlined above, we did not officially work or deal directly with the bank. We basically provided a form of 'seed-funding' for the Developer to be able to mobilise funding from the bank.

I believe that Islamic Banks will eventually see the potential of partnering or collaborating with Crowdfunding. It is a matter of time. And with all things good, the earlier that time comes, the better.

InshaAllah!

Please share your thoughts and opinions or constructive criticism on my views. JKK and Ramadan Mubarak.

Do also share if you are aware of other Islamic Crowdfunding Platforms. I would love to be in touch with them.

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