Adapting crowdfunding for SME financing in Malaysia /|cby Ahmad Abdur-Raheem Sabree

Abstract

Traditionally, financing for small and medium enterprises (SMEs) was raised by entrepreneurs using personal savings and contributions from family and friends. Inevitably, the average person’s personal savings and those of their immediate social circle will not be able to sustainably finance the company over the long run, therefore bank financing is the most heavily relied upon source of financing businesses. Although banks have no shortage of funds to lend, they have extensive lists of requirements that a borrower must abide by in order to acquire a loan. The requirements are so burdensome that many SMEs cannot fulfill them, and those that do are saddled with high interest rates when repaying the loan. All these factors indicate the need for an easier method for SMEs to acquire financing to expand and develop their businesses. This study proposes crowdfunding as an alternative financing mechanism for Malaysian SMEs. Particular focus is given to reward based and equity based crowdfunding. The study is exploratory in nature and investigates the history and functions of crowdfunding globally and in Malaysia. A brief portion discusses the Shariah compliant nature of crowdfunding in order to clarify how it is even more ideal for Muslim business owners. Finally, the paper discusses the latest development in crowdfunding regulation in Malaysia followed by recommendations on how to further improve the local crowdfunding industry.