Equity Crowdfunding (ECF)
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How Does Shariah Compliant Equity Crowdfunding (ECF) Work for Businesses?
The Shariah compliant ECF fundraising exercise goes through the same process except for three key differences. Firstly, the issuer has to go through a shariah compliant ECF briefing. It is to ensure that the issuer is aware of the commitments that entail from exercising this undertaking.
Secondly, the issuer has to undergo a shariah screening process. It is mandatory for issuers who are interested in doing a shariah compliant ECF fundraising exercise. The screening will focus on two levels of screening, which are business or activity screening and financial ratio screening. It is to ensure that the issuer complies with the requirements laid out in the SC’s Shariah Screening Assessment Toolkit for Unlisted Micro, Small and Medium Entreprises (Toolkit).
Last but not least, issuers also must ensure that the relevant legal documentations are aligned with the ECF platform’s shariah compliance requirements. They will be reviewed prior to commencement of the fundraising campaign. Only those who meet the eligibility criteria will be allowed to list their campaigns as being shariah compliant.
Differences between Conventional Equity Crowdfunding (ECF) and Shariah-Compliant Equity Crowdfunding (ECF)
| Conventional ECF | Shariah-Compliant ECF |
|---|---|
| Can invest in a wider range of businesses and industries, including those that may not be Shariah-compliant | Investors often have a say in the company's management and strategy |
| Does not adhere to Islamic finance principles, but instead operates under conventional finance practices | Adheres to Islamic finance principles, such as profit and loss sharing, and prohibits interest-based transactions |
| May have a larger pool of potential investors due to the broader range of investment opportunities | May require a Shariah advisory board to oversee investments and ensure compliance with Islamic finance principles |
| Does not require a Shariah advisory board or compliance with Islamic finance principles | May have a smaller pool of potential investors due to the specific requirements for Shariah compliance |