The world today is hyper-connected
Where there once was a huge technology gap between wealthy and poor nations, we now observe the rapid adoption of technology in the less- developed world. This is driven by the availability of low-cost smartphones, leading to the incredible explosion of mobile-data users. With this, the expensive internet infrastructure that had prevented the spread of the internet is suddenly no longer a barrier. Anyone can go online with a mobile phone, except only some remote areas that mobile networks do not reach.
With millions more people coming online, we become a giant global village. Humanity now has in its grasp the unique opportunity to exchange knowledge and ideas in a borderless environment. Connecting people also means that we can now more easily share our time, effort, money and other resources with others.
The Sharing Economy and the start of the Gig-economy
E-commerce was the first off the blocks, with Amazon booming in the US and Alibaba in China. Soon, local options emerged, and now ‘online shopping’ is so widespread that it’s replaced physical buying. With advances in logistics infrastructure and technology, it is now viable for people worldwide to buy individual items from across the globe. Next we will likely get used to drone-deliveries.
People then started providing services to each other – commonly referred to as the ‘Gig-economy’. The meteoric rise of Uber and AirBnb proved that the sharing economy could bring tremendous value to society by activating dormant or under-utilised vehicles and apartments for use by others. Complacency leading to poor quality among taxi companies and hotels pushed customers to these new options, and the ease of use of these technology solutions helped retain these customers. Would anyone choose to flag down a taxi today if you had a ride-hailing app? Why get a hotel room with outdated electronics and poor wifi when you can get an entire apartment with a smart TV at the same price, especially one recommended by other users?
A Shift to People-Power
The spread of international trade and investment was known as globalisation. This was driven by governments and large corporations. The ordinary person had little say or influence in how things panned out, resulting in increased inequality where developing countries tend to be exploited in the pursuit of profits. The sharing economy, however, is fundamentally different – it gives the power back to the people. Today, although the unicorn tech companies that run sharing economy platforms are indeed powerful, they also understand that the fuel for their platform is users.
The sharing economy is essentially an ecosystem of marketplaces that facilitate the sharing of resources. Platforms facilitate people to people, or peer-to-peer delivery of services.
Sharing of Money – Crowdfunding
Does the sharing economy bring this people-power to finance? While much of fintech is focused on payments technologies for faster and cheaper transactions, one fintech model stands out as a sharing economy platform for funds – Crowdfunding!
Charity, financial support and various types of investment can be raised via online crowdfunding platforms. Leading platforms today already channel billions of dollars to hundreds of thousands of projects and campaigns online. China and the US have seen more than US$250bn move through platforms, mainly as direct lending or investment. The UK and Australia have introduced regulations, resulting in their crowdfunding industries sky-rocketing to hit tens of billions of dollars in just a few years. Since Indonesia started registering platforms to allow them to operate within limits in 2016, crowdfunding ballooned to more than US$1 billion!
Crowdfunding essentially connects those with funds to those who seek funds. The minimum is usually small, allowing for large-scale participation and virality. Larger investors can choose to spread out their investment into multiple campaigns at a time, and smaller investors are now empowered to increase their investment activity. Interestingly, while there is a large wave of first-time investors, most markets also see a surge of investment from high-networth individuals (HNWs), sophisticated investors and financial institutions. Everybody and anybody can now syndicate investment deals easily online.
The key value in crowdfunding is that it brings social capital to the equation. This leads to greater visibility of such platforms and attracts even more quality projects to try to raise funds, which attracts more funders and leading to a virtuous cycle – a snowballing ‘network’ effect. With so much dealflow coming to platforms, larger investors and institutions seeking deal flow and returns start to participate, bringing their larger funds in.
The Islamic Digital Economy
How does all this bode for the Muslim world?
Let’s look at the numbers and facts. Islam is the fastest-growing religion, and is expected to be the largest group in the next few decades (Pew research). The Muslim world is young and has high mobile and internet penetration rates. With close to two billion Muslims, there is a huge population with unique financial needs for halal investment and charity.
How fast Islamic crowdfunding will grow also depends on how many Muslims will go for Islamic alternatives compared to conventional ones. While there is definitely a significant pool of practicing Muslims who will only engage in activities that are halal, there are also those who take shariah-compliance less seriously. Islamic platforms must thus be able to provide competitive services and quality experiences to secure Muslims who may view Islamic as a feature or a bonus. On the other hand, non-Muslims may also participate, attracted to the universal ethics of Islamic finance.
The sharing economy thrives when strong communities form online. Muslims are arguably the single largest group of people with unique preferences – in short the biggest community on earth. When good Islamic crowdfunding platforms are able to reach out and effectively serve this giant community, the scale will be immense. And if the experience is a good one these Muslim users will be converted into loyal advocates and supporters.