Islamic Crowd-funding as The Next Financial Innovation in Islamic Finance: Potential and Anticipated Regulation in Indonesia

Abstract

Crowd-funding is an innovative concept. The online nature and the usually small size of investments of crowd-funding makes it different from private placement or other similar activities. Crowd-funding is still infant industry but growing fast, including Islamic crowd-funding. Islamic crowd-funding is the platform designed to comply with the sharia. Considering as the most populous Muslim in the world, the third largest democracy, and the biggest Muslim nation in the world, with favorable demographics and transition to a middle-income country, Indonesia will mean eventually become the biggest market for Islamic finance. Hence, the coming era of Islamic crowd-funding in Indonesia is also underway. However, there is still lack of awareness and understanding about Islamic crowd-funding including its prospects and challenges. There is also no specific regulation on Islamic crowd-funding yet. In near future, regulation must also be put in place for crowd-funding. Regulator needs to create frameworks that provide sufficient structure and protections while allowing enough space for an orderly and robust market to grow. It is incumbent on Indonesia to ensure the groundwork in its place. Otoritas Jasa Keuangan (OJK) has shown resolve and determination to ensure the requisite infrastructure and regulations needed. Sharia and crowd-funding have similar goal and philosophical foundation. Our paper suggests that crowd-funding and Islamic finance are inherently compatible and mutually reinforcing. Islamic crowd-funding may also help Islamic finance to play more important roles with more significant market share in the Indonesian economy. Our paper also describes possible anticipated regulations for crowd-funding in Indonesia.