Crowdfunding platforms are developing their Shariah-compliant credentials

When Beehive, a Dubai-based crowdfunding platform, announced in September that the Shariyah Review Bureau had certified it as Shariah-compliant, it was a watershed moment. Craig Moore, founder and CEO of Beehive, says the development made it the first crowdfunding platform in the world to be independently certified in this way.

Crowdfunding has been growing in popularity in recent years and is increasingly making inroads into the world of Islamic finance. Beehive offers debt-based funding, matching up established businesses with investors while bypassing the established finance industry. The debt is repaid along with a profit, rather than interest, to ensure it remains Shariah-compliant. According to Moore, tapping into the world of Shariah-compliant finance offers a way for both sides to benefit.

“We feel that there is a definite demand for new asset classes in the Islamic finance space,” he says. “Islamic investors have always faced challenges with diversifying their investment portfolios due to the limited investment options available that adhere to Shariah principles. Beehive offers access to debt-based crowdfunding that results in faster access to lower-cost financing.”

The platform is not alone in targeting this segment of the market. Over the past few years the number of crowdfunding sites around the world has mushroomed, and many in the Middle East region see Shariah-compliant finance as an area of opportunity.

TWO CATEGORIES 

Crowdfunding can be divided into two broad categories. There are donation and rewards-based platforms, which involve relatively small amounts of money for individual projects or very early stage companies. At the other end of the scale are investment platforms, which use equity, lending or royalty-based models and involve larger amounts and more mature companies.

Globally, the best-known rewards-based platforms are Kickstarter and Indiegogo. Within the Middle East, perhaps the most prominent is Beirut-based Zoomaal. It doesn’t specifically target halal companies or Shariah-compliant finance, but CEO Abdallah Absi says the vast majority of projects on the site are Shariah-compliant. It is also seeking to develop a certification scheme for projects that are sadaqa jariyah, a form of Shariah-compliant charitable giving that has a sustainable, long-term impact.

“That is something we are working on right now, to give a certification to projects that qualify in terms of their sustainability. We have to work with a third-party organization. They will certify the project and then we will add a badge to the project on our platform to say it is sadaqa jariyah,” he says.

OTHER SHARIAH-COMPLIANT PLATFORMS

Among the Middle East’s investment crowdfunding platforms is Dubai-based Eureeca.com. As with Zoomaal, it does not promote itself as a vehicle for Shariah-compliant finance, but it says the nature of its business model is closely aligned with Islamic finance principles.

“Equity financing requires investors to have a more vested interest in the success of the venture they're financing,” says Eureeca managing director Sam Quawasmi. “Investors and issuers share in the venture’s failure or success. Through this lens, equity finance such as that on Eureeca is much more aligned with the Islamic financing product of musharakah, which is essentially an Islamic joint venture.”

There are many other crowdfunding platforms that target the Muslim community. In Singapore, Club Ethis describes itself as the world’s first Shariah-compliant real-estate crowdfunding platform.

LaunchGood, which uses the tagline “crowdfunding incredible Muslims,” was set up in the U.S. in 2013 and has since expanded to other countries, including France, Brazil and Russia. It says it has enabled 385 projects in 31 countries to raise $3.8 million.

Some of the Middle East platforms are also set for international expansion. Absi says Zoomaal is planning to expand into Turkey and also has ambitions to reach out to Africa, South America and Southeast Asia. International expansion may even change the approach of some platforms to Shariah compliance.

“We have not as yet encountered enough demand for Shariah-compliant finance to justify developing such a product,” says Quawasmi. “However, if as we continue to expand our presence in emerging markets such as Malaysia, [and] we notice a demand we will give it another look.”

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