Islamic crowdfunding is the raising of funds from a large number of individuals through an online platform, using contracts accepted by Sharia such as donation, Musharaka, Mudaraba or Murabaha, while excluding any loan that pays interest.
Four families of crowd-raising seen through Sharia
The market distinguishes donation, reward, lending and equity. The first two rarely raise issues, the third is excluded as soon as it pays interest, and the fourth must respect loss sharing. Each model therefore calls for a different contract.
Donations and rewards: sadaqa, waqf and symbolic gifts
A campaign for a well, a mosque or tuition fees is sadaqa and promises nothing to the donor. It can feed a lasting waqf. A symbolic reward, such as a book or a public thank-you, does not turn the donation into a sale.
Pre-ordering a product: Istisna in the background
When a creator raises money to manufacture an item delivered later, the operation resembles an Istisna contract: the backer buys a good to be produced, precisely described, at a fixed price. If production fails, the backer must be refunded, since the counter-value has disappeared.
Why interest-paying peer-to-peer lending is excluded
On a conventional lending platform, each lender receives the principal plus an advertised rate whatever happens to the project. That is precisely riba al-nasi'a. Only a loan with no excess at all, a collective qard hassan, remains acceptable in this category.
Taking an equity stake through Musharaka
In equity crowdfunding, backers become partners in the company and share profits and losses in proportion to their stakes. The Sharia board checks the company's activity, its interest-bearing debt and the absence of any clause guaranteeing a return to investors.
Mudaraba: the crowd brings the money, the founder the work
Some platforms structure the raise as Mudaraba: investors supply all the capital and the project owner manages it. Profit is split at a fixed ratio, for example 60/40, while a loss without fault by the manager falls on the capital providers alone.
Funding an SME's stock through collective Murabaha
Some platforms, notably in Southeast Asia, pool investors who buy through an agent the goods an SME needs, then resell them to it at a margin payable later. The return is known in advance, but the risk of default remains.
Example: 250 backers for 100,000 euros of goods
Each backer contributes 400 euros on average. The agent buys the stock and resells it to the SME for 108,000 euros payable in six months, and the 8,000-euro margin is shared pro rata. If the company goes bankrupt, investors become creditors with no guaranteed recovery.
The platform acts as Wakil and charges a fee
Legally, the operator is usually an agent under a Wakala contract who selects projects, collects funds and monitors repayments. Its remuneration must be a fixed fee or a known percentage, not a share linked to an interest rate.
How a Sharia board screens the projects on offer
Before listing, scholars review the business sector, exclude alcohol, gambling or conventional finance, then check the contracts signed. A serious platform publishes the board's opinion and keeps a purification mechanism if non-compliant income appears.
No capital guarantee and a duty to inform
No participatory contract can promise full repayment. The IFSB standards on transparency ask for disclosure of risks, of the method used to calculate profits and of fees; applied to platforms, they encourage publishing observed default rates.
Rules that depend on the platform's home country
In Malaysia, the Securities Commission registers equity crowdfunding and peer-to-peer financing platforms. In the European Union, Regulation 2020/1503 harmonises the authorisation of providers. Neither regime certifies Sharia compliance, which is left to each operator's board.
Specialist external source
The IFSB standards set the requirements on transparency, Sharia governance and risk management that can be transposed to crowd-raising platforms.