Crowdfunding regulation from ECSP to Islamic crowdfunding standards

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On October 5. 2020, the EP adopted the European Crowdfunding Service Provider (ECSP) for Business Regulation, welcomed by the ECN (European Crowdfunding Network).
The final text has been published in the Official Journal of the European Union. The regulation will apply one year after publication in November 2021, with the European Commission still defining some regulatory standards with input from the European Security and Markets Authorities (ESMA) and the European Banking Authorities (EBA).
The harmonised rules will help crowdfunding to function more smoothly across the EU and to support cross-border funding, by providing for a single set of rules on crowdfunding. It will apply to all ECSP regulated crowdfunding platforms (equity based and lending based) for offers of up to EUR 5 mln, calculated over a period of 12 months per project owner. There are however certain areas in which Member States will still have the power to make adjustments in due course.
Important news are coming also from the Islamic crowdfunding market. The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), a Barhain based non-profit body working on the standardization and harminization of international Islamic finance practice according to Shari’ah, is working on a standard for online Islamic crowdfunding and plans to have it ready by the end of next year.

The critical differences between Islamic crowdfunding and “conventional” crowdfunding reside on the following:
– Absence of interests (riba) with islamic crowdfunding while conventional crowdfunding applies and interest rates.
– While conventional crowdfunding looks after profitability in prioprity, islamic crowdfunding looks mainly after sharia compliant objectives  (they should be “halal”) which  exclude any non ethical projects involving speculative elements (Gharar) or gambling.
“The objective of this standard is to set out a comprehensive framework for Islamic crowdfunding governance with detailed coverage of areas relating to the cybersecurity and disclosure requirements in such instruments,” Dr. Rizwan Malik, Senior Manager, Standards Implementation & Strategic Developments at AAOIFI, told Salaam Gateway.