The MGS Blog

Thursday, March 28, 2013

Links between crowd funding and Islamic finance?

The idea of Crowdsourcing sometimes sits uneasily with the general sourcing literature. The sourcing literature seems to focus on inter-organisational and/or intra-organisational relationships, market-style arrangements for containing specialised value-added links in a production chain, and ultimately the commodification of work. Crowdsourcing in contrast focuses on mutuality, creativity, on unlocking the potential of dispersed though like-minded individuals to address needs that they agree on. Crowdsourcing is, perhaps, more like Islamic finance than Sourcing or Outsourcing in general.

Another way of interpreting, or adapting the Crowdsourcing concept is the idea of Islamic finance. Yomken ( is a crowdfunding platform for financing projects and business ventures. They employ a crowdsourcing model utilising social networks as communities for gathering funds for new projects and solve problems. The net result is to release capital to entrepreneurs, and generate value while adhering to the founding principles of Islamic finance.

The underlying concepts of Crowdsourcing seem to reflect the principles of Islamic finance which, simply put, does not allow interest to be charged for loans. Similarly, betting on the result of a race, speculating on interest rates, hedging contracts and other instruments usually associated with the conventional global finance industry are disallowed. That doesn't mean that Islamic law eschews involvement in finance, raising speculative capital, or realising returns on investments. Instead Islamic finance treats ventures as joint endeavours or partnerships. For example, if you need to raise money to buy a house, you and the bank become joint partners in a contract to buy the house; you both contribute funds while you agree to pay the banks share plus a pre-agreed fee, not interest. A consequence is that it impossible to collatorise these kinds of joint-endeavour contacts. One line of thinking suggests that Sharia or Halal finance could be used as a principle based remedy to avoid collapses in financial markets like the sub-prime lending crisis that spread from the US in 2008.

In conclusion, Crowdsourcing is built on the ideas of community, of shared interests that capitalises on the potential of social network services to enable nascent communities to coalesce and persist in spite of the spatial-temporal isolation of the individuals who join them.