GLOBAL: AAOIFI has approved in principle the governance standard on Islamic crowdfunding, the first of several planned fintech-related frameworks from the global standard-setting body.
The AAOIFI Governance and Ethics Board (AGEB) in its latest meeting reviewed and deliberated conceptual issues revolving around Islamic crowdfunding and has directed the secretariat to incorporate the necessary changes and subsequently issue the exposure draft for public comments.
“There are significant risks of Shariah non-compliance and fraudulent practices in the crowdfunding industry, therefore, I am pleased that the board initiated this project to ensure good governance in the whole process,” Farrukh Reza, the chairman of the AGEB, said. “With proper governance, Islamic crowdfunding shall flourish and offer new investment opportunities to retail investors and businesses. It will also reduce the potential risk to the reputation of the Islamic finance industry.”
Crowdfunding is one of the fastest-growing fintech verticals within the Islamic finance industry. There are 62 Islamic crowdfunding and peer-to-peer (P2P) financing platforms globally according to the IFN Islamic Fintech Landscape as at the 23rd June 2021. Jurisdictions such as the UAE, Bahrain and Malaysia have formalized regulations for Shariah crowdfunding and P2P finance; global guidance however will provide a more coherent and standardized approach to other regulators looking to introduce Islamic crowdfunding, which would enhance the access to Shariah compliant financial instruments at the retail level. “I am very pleased to mention that in the recent strategy plan for development of the governance standards, the AGEB has assigned due significance to the role of technology in changing the future of Islamic finance, either by changing the business model of the Islamic financial institutions or by introducing new business models and newer types of Islamic financial service institutions. The initiatives include multiple projects related to Islamic fintech, and this is our first deliverable to the market in this regard, whereby a lot more will follow InshaAllah,” AAOIFI Secretary-General Omar Mustafa Ansari shared.