Participation Crowdfunding: An Evaluation and Recommendation in the Context of AAOIFI Islamic Crowdfunding Standard

Abstract

Crowdfunding, which has the potential to be an alternative Islamic finance instrument, needs a legal regulation to have this feature. While Turkey has not yet taken a step in this direction, AAOIFI, one of the most important standard-setting organizations in the global Islamic finance industry, published a standard in 2022. The purpose of this study is to determine how to structure crowdfunding as an Islamic financial instrument under the guidance of the AAOIFI standard. To achieve this purpose, the AAOIFI Islamic Crowdfunding Corporate Governance Standard was analyzed through content analysis. As a result of the analysis, it was found that the standard defines Islamic crowdfunding and describes Islamic crowdfunding companies as Islamic financial institutions. It was determined that the crowdfunding company and the issuer must comply with Islamic principles and rules in their activities, that various audit mechanisms ensure that this compliance is sustainable, and that procedures are included on what to do in case of violations. Finally, the study recommends the regulatory authorities in Turkey to regulate a financing instrument called Participation Crowdfunding, which is based on equity-based crowdfunding and is compatible with Islamic principles and rules without any exceptions or tolerances.