This first subdivision of this paper defines crowdfunding and explores the three different types of crowdfunding: contribution crowdfunding, equity crowdfunding, and debt crowdfunding, and provides analysis of each. Following, it lists the benefits followed by rebuttals of the statements made by the critics of crowdfunding. Then, the paper explores possible hazards of crowdfunding every bit good as how to Islamically attack crowdfunding, followed with the sum-up of the paper.
Keywords:crowdfunding, benefits, hazards, critics
As engineering evolves, everything adjusts to remain current. In this society, anything one twelvemonth old becomes disused and people are ever looking for an update. From new autos to new pencil manners, we see this illustration all around us. Peoples adopt these new engineerings to profit themselves, their concerns, and people around them. A perfect illustration of this is crowdfunding: a radical manner for concerns, organisations, or even persons to raise financess for their thoughts and undertakings publically through the cyberspace.
Crowdfunding is a term foremost coined in 2006 to acquire users of FaceBook, Twitter, and other societal media to fund undertakings and causes. Before the usage of crowdfunding, people would publically inquire their protagonists to donate. For illustration, a vocalist would inquire his/her fans to donate for a new album or a circuit that he/she may be go toing. Admiting the benefit of crowdfunding, many people have created crowdfunding web sites to back up their thoughts or demands, the most popular site being gofundme.com. This web site, created by Brad Damphousse and Andrew Ballester in May 2010, is the chief web site for crowdfunding. Businesss or persons who need money in a short period of clip will do a web site and will open it to the populace for them to donate. Thousands of people have opened their runs to the populace and have jointly raised over $ 120 million since the creative activity of this web site ( Ballester, Damphousse, 2010 ) . In add-on, the
US authorities has recognized crowdfunding as playing a really of import function in economic growing because it helps more persons to go consumers and manufacturers without the support of concerns or companies ( Gerber, Hui, & A ; Kuo ) . Fund-raising methods have evolved and crowdfunding is being adopted by concerns, organisations, and persons for its convenient characteristics.
There are three different types of crowdfunding. The most common is Donation Crowdfunding. In contribution crowdfunding, people donate because they agree with the cause. Small wagess may be offered for donating, but the chief ground people donate this manner is because they have personal motive to donate and after donating, they feel a sense of satisfaction and achievement. For illustration, there may be a crowdfunding chance to assist the homeless in a specific country. One may donate entirely for the satisfaction of cognizing that they may hold impacted a person’s life without anticipating anything in return. The 2nd type of crowdfunding is Debt Crowdfunding, where people invest money for a cause, and the investors receive money back with involvement. This manner, concerns and companies can avoid Bankss and although the investors help financially, they besides feel that they supported a cause that they agree with. Debt crowdfunding is most popular with concerns looking to have a loan to get down their concern. Last, there is Equity Crowdfunding, in which people exchange money for portions in the concern or cause. However, in this method, there is a hazard of losing all the money invested if the portion values plummet. In add-on, some crowdfunding web sites may inquire one to put their clip in assisting with the promotion of a specific cause or undertaking if they are non able to help monetarily ( Andrew, 2013 ) .
Regardless of the methods, crowdfunding offers legion benefits for both givers and beneficiary. The first of these benefits is the “reward” that givers may have if they contribute to a certain company’s/individual’s crowdfunding web site. For illustration, two people had an thought to fabricate a java warming merchandise that would be funded through crowdfunding. They raised $ 306,944 and as an inducement to donate, anybody who donated $ 40 and supra received the merchandise after the fundraising end was met ( Gerber et al. , N.D ) .
Besides, when givers donate, they can be assimilated with fellow givers, making a fan base between givers and beneficiary. This fan base can back up the company/individual’s thought ( s ) and givers may have periodic presentments while concerns at the same time earn gross. Similarly, if a little concern has a merchandise they want to advance, and they have clients who are willing to purchase it, so the clients can back up the concern via crowdfunding to assist it go popular ( “Crowdfunding for Nonprofits” , 2011 ) . Crowdfunding consequences have shown that enterprisers are spread outing their concerns through crowdfunding. As stated by Chance Barnett, the laminitis of Crowdfunder ( a massive crowdfunding web site ) , “Crowdfunding sites generated some $ 2.8 billion last twelvemonth, a figure that will surge to $ 15 billion by 2015” ( Diamandis, 2013 ) . This optimistic position is the ground why concerns and organisations are puting money in crowdfunding runs.
Along with the aforesaid benefits, users of crowdfunding do non hold to worry approximately long or short distance fund-raising due to crowdfunding being chiefly a societal beginning. Harmonizing to Ajay Agrawal and co-authors, “the mean distance between artist-entrepreneur and
investor is about 5,000 km” ( Agrawal et al. , 2011 ) . Last, and most significantly, crowdfunding can assist make occupations for the unemployed, helping the fighting economic system. Crowdfunder, a crowdfunding web site, helps unemployed people by directing them to a specific concern or company where their accomplishments can be utilized. Crowdfunder does this by “creating a platform where people can prosecute on that more personal level” ( Diamandis, 2013 ) . What Diamandis means by “more personal level” is that Crowdfunder interviews the unemployed and based off their personal involvements, accomplishments, and experience, directs them in a way that will assist them come out of unemployment.
Regardless of these benefits for both investors and donees, there are many controversial facets of crowdfunding. Critics argue that companies who use crowdfunding are weak, intending they have a negative hereafter mentality ( Caldbeck, 2013 ) . Although this may be true for a really little per centum of companies, the remainder of the companies have a positive mentality. Companies that are confronting tough times turn to crowdfunding to assist them resile back, and the attempt is frequently successful. For illustration, a adult male named Shemar Moore wanted to advance his movie online through crowdfunding. In one month, he surpassed his end of raising $ 500,000 and made $ 139,000 more than he expected ( Iamrogue 2013 ) . This proves to critics that non all companies who use crowdfunding are weak and have a negative mentality, and those who are weak benefit greatly from crowdfunding.
In add-on to critics saying that companies utilizing crowdfunding are weak, they maintain that companies who use crowdfunding may hold confidential information revealed. This is
incorrect, for many companies that utilize crowdfunding do money off the name trade name of the merchandise. For illustration, there are many types of places but many people buy Nike because it’s popular in society. Another trade name can dispute the trade name, but finally, opportunities are high that Nike will be more successful. Besides, crowdfunding web sites are doing a private subdivision for companies to set their confidential informations in so that other companies do non see the informations and the company won’t have to worry about confidentiality ( Caldbeck, 2013 ) .
Along with these concerns, critics besides assert that givers are minor people utilizing their parents’ money to fund undertakings. However, this is non true as many givers are entrepreneurs with experience of back uping these causes. Last, critics proclaim that as a consequence of crowdfunding being technological, there is a opportunity of fraud to happen. Therefore, one should inquire themselves specific inquiries before donating to these crowdfunding sites. First, they should inquire if there is a system of cheque and balances to do certain that their money is received by the right receiver. Then, they should inquire if a background cheque was done on the receiver to do certain that they’re non scamming you and stealing your money. These are some ways one can find whether or non they should direct their money to that particular concern, organisation, or single ( Caldbeck, 2013 ) .
Furthermore, critics uphold that traditional fundraising methods trump the methods of crowdfunding. Despite their beliefs, there are legion grounds why that may be wrong. First, in traditional fundraising, having investings from outside beginnings may necessitate the concern or single to pay the lender back. This defeats the intent of fundraising, for the
“donation” becomes a loan. In crowdfunding, the concern or single do non hold to pay the givers back. Besides, many investors are looking to see a consequence of their contributions rapidly. In traditional fundraising, the consequences come easy, and at that place isn’t an update every clip person donates. However, in crowdfunding, the consequences are updated anytime a contribution is made. ( Steinberg & A ; DeMaria, 2012 ) .
Aside from what critics believe, crowdfunding has its hazards for both giver and beneficiary. Most start-up concerns raise financess through crowdfunding to advance their merchandise or thought. However, harmonizing to Business Insider, 93 % of start-up concerns fail because they do non hold a solid platform to construct their gross on ( Blodget, 2013 ) . This demonstrates that people who donate to these types of concerns have no warrant that they will have a wages or any type of inducement. On the other manus, these concerns may startup, but will take a long clip making so ; therefore, people who donate through equity crowdfunding will hold to wait to see their portion net income until the concern ( Es ) they are back uping range the stock market, which takes old ages of success. Besides, what many investors don’t cognize is that it is non possible to sell one’s portions to another individual because it is really hard to return the money one donated to the concern.
Crowdfunding has Islamic hazards every bit good. The traditional agencies for raising capital for companies, concerns, or persons involves having a loan from a bank that may bear down involvement. The Holy Quran provinces in Chapter 2, Verses 275-276, “Those who devour riba ( involvement ) will non stand except as bases one the Satan has driven to madness by his touch. That is because they have said: ‘Trade is but like riba.’ But Allah has permitted trade and out riba. So,
whosoever after having warning from his Lord desists, he shall be pardoned for the yesteryear, and his instance is for Allah ( to judge ) ; but one who reverts ( to the offense ) , those are the comrades of the fire. They will stay therein ( for of all time ) . Allah destroys riba and gives addition for workss of charity, for Allah loves non any ungrateful/non-believing sinner.” Crowdfunding offers an alternate manner to raise money without involvement. However, of the aforestated methods, Debt Crowdfunding is non allowed in Islam because most of the clip there is involvement involved. It is reported in a Hadith in Sunan of Abu-Dawood, Hadith 3327, “Narrated by Abdullah ibn Mas’ud, The Apostle of Allah ( peace be upon him ) cursed the 1 who accepted involvement, the 1 who paid it, the informant to it, and the 1 who recorded it.” This clearly displays that we should be careful in avoiding this type of crowdfunding for involvement plays a function.
In add-on, when covering with Equity Crowdfunding, there is a hazard of going involved with involvement and we shouldn’t make anything that can put on the line us going involved in an improper act. Therefore, the safest and most profitable method of crowdfunding is Donation Crowdfunding. This is because there is no involvement involved and the people who donate do non anticipate anything in return, assisting the host of the crowdfunding site receive support without holding to pay anyone back. All in all, crowdfunding is a comparatively new thought that has been recognized by many concerns, organisations, and persons who are looking for protagonists to donate for their thought or enterprises. Although faced with unfavorable judgment, crowdfunding has several benefits such as back uping turning and established concerns with income, supplying the evidences for
research workers to carry on new experiments, and being able to fund-raise without holding to refund givers. Numerous concerns and persons have switched from traditional fund-raising methods to crowdfunding, admiting its utility in raising financess through the usage of the populace.
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The Koran: ( Al-Baqarah 2:271 )