Equity-Crowdfunding in Malaysia: The Needs for A Comprehensive Shariah Governance

Abstract

In recent years, crowdfunding has emerged as a viable alternative channel for entrepreneurs to fund their early-stage businesses. The rapid development of the internet worldwide has turned crowdfunding into a mechanism that can pool resources from people to people without financial intermediaries. This unique alternative finance could support Islamic finance as far as its practices comply with Shariah since crowdfunding philosophy has already in line with the spirit of Shariah in terms of promoting wealth distribution, encouraging transparency and supporting socio-justice. Nevertheless, the current regulatory requirements for Shariah aspects seem to be lenient, unlike Islamic financial institutions. In fact, without a proper Shariah monitoring process, it could lead to serious issues in terms of public confidence, the status of funds and the outcome of crowdfunding practices. In this regard, this paper aims to propose a special Shariah governance model for equity-based crowdfunding in Malaysia. As this research is a conceptual study, the data are based on literature review, including books, articles, theses and related academic and non-academic items. Based on library research, it is essential to establish a comprehensive Shariah governance framework or equity crowdfunding to ensure all its activities in line with Shariah rulings and principles. This includes to appoint several committees including Shariah review, Shariah audit and Shariah risk management. Since this study is based on literature, future studies are suggested to expand into empirical research. At the same time, several crowdfunding websites are explored to closely analyse their practices. Even though library research is limited in some aspects, it is sufficient as an exploration as well as to theoretically propose a special Shariah governance model for Islamic equity crowdfunding in Malaysia.