What is Islamic crowdfunding?

Le islamic crowdfunding offers a huge opportunity to lenders, investors but also entrepreneurs who contribute to the social and economic development of the small and medium enterprise sector in Islamic countries. Crowdfunding literally means “ crowdfunding ". This is generally the term most used to refer to this financial practice, but it is also called " crowdfunding or “crowdfunding” in Canada.

Project leaders call on several financial instruments including public participation to fund their ideas, programs or products. Today, these fundraisers or collections take place through web platforms.   

These last are the support to put in relation on the one hand an investor and on the other a project whose realization meets obstacles of capital. Transactions are therefore totally dematerialized and disintermediated.

Of course, Crowdfunding does not replace traditional subscription or even investment solutions, but it participates in a new form of diversification in terms of savings and profitable investments.

More broadly, we can see in the development of Crowdfunding a natural and legitimate trend in a global context where collaborative consumption and participatory production play an increasingly important role. You can learn more from crowdfunding here.

In this article, we talk about Islamic crowdfunding.

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What is Islamic Crowdfunding?

Crowdfunding Islamic is by definition a Shariah compliant financing option which involves financing a project with funds from a group of investors in favor of a Muslim borrower and where the fundraising and related transactions are carried out through an Islamic crowdfunding site that follows Islamic principles.

Islamic Crowdfunding Vs Conventional Crowdfunding?

The difference between Islamic crowdfunding and conventional crowdsourcing as practiced in the Western world is not fundamentally given when looking at the mechanisms used to raise funds: investors (crowd) contribute to the financing of a project by sharing the profits and losses with the borrower or the promoter of the project.

The essential differences between the two forms of crowdfunding lie in the following elements:

• Absence of interest (riba) with Islamic crowdfunding while conventional crowdfunding applies and interest rates.
• While conventional crowdfunding is primarily aimed at profitability. It mainly pursues Shariah compliant goals which exclude any unethical project involving speculative elements (Gharar) or gambling.

Islamic crowdfunding is a complementary financing instrument major in Islamic finance. This important way of lending is the first change since the emergence of Sharia-compliant finance.

Sharia-compliant crowdfunding is a funding mechanism where funds are collected from a number of people using a platform that complies with Islamic Sharia rules. It connects investors to entrepreneurs.

Islamic crowdfunding follows the principles of Islamic finance. It encourages cooperation between a large number of people to invest funds in a project or business. This corresponds to the Sharia principle that excess resources are transferred to sectors devoid of wealth.

Halal crowdfunding has recently gained more and more acceptance and is becoming more and more an important financing instrument in the world of Islamic finance. Since crowdfunding offers debt-based financing, the debt is repaid with profit and not interest, making it Shariah and Halal compliant.

Types of Islamic special financing

Islamic crowdfunding mainly consists of four types of platforms:

• Islamic crowdfunding.
• The crowdfunding of Islamic rewards.
• Islamic crowdfunding.
• Crowdfunding of Islamic debt.

A. Donation-based Islamic crowdfunding

In case of donation, donors give quite small amounts for a non-profit project or a social development initiative such as supporting a family with medical treatment or building a school in Africa or for a personal campaign such as the treatment of a individual or medical bills.

B. Crowdfunding based on Islamic rewards

Donors contribute small amounts of money for a reward after the project is completed. The reward is a product generated by the project and can be a shirt, CD or movie.

C. Islamic Crowdfunding

At this point, investors donate substantial sums of cash. As the name suggests, stock injectors by investing become shareholders and share in profits and losses.

D. Islamic Debt Crowdfunding

Shariah-compliant debt crowdfunding is when lenders make a loan and expect to be paid for principal and profit.

Trends in Islamic Crowdfunding

Crowdfunding will soon become a necessary path for Muslim countries and real estate crowdfunding is one of the most effective forms of investment.

Au Middle East as well as in the Far East, a number of platforms do not present themselves as sharia-compliant crowdsourcing vehicles, but the mechanics of their business model are closely aligned with Islamic finance rules.

Islamic crowdfunding does not only tackle the problems of Muslim communities because it is an ethical form of financing that focuses on values ​​and ethics such as social development. Islamic-crowdfunding.com has selected for you the best platforms dedicated to Sharia compliant crowdfunding.