Exploring the 'Normal Investor' in Islamic Finance: A Behavioural Finance Approach to Mudharabah-Based Crowdfunding.

Abstract

This paper aims to evaluate the expectations of potential investors in Mudharabah-based crowdfunding. It is a qualitative study involving semi-structured interviews with potential capital providers or rabb al-mal about the possibility of implementing Mudharabah-based crowdfunding in Malaysia. The data are analyzed using thematic analysis. The results show that potential capital providers in Mudharabah-based crowdfunding are willing to invest if the investment platform is regulated. Despite the higher risk of losing the invested capital due to conditions in the Mudharabah contract, as long as both parties, mudharib and rabb al-mal, agree, Mudharabah-based crowdfunding could become a reality. Additionally, as typical investors, capital providers are believed to know and are expected to make the best investment decisions. However, even a smart investor can make mistakes due to cognitive biases, like believing the future will be as easy as the past. The study is limited because it focuses only on Malaysia, especially since Equity Crowdfunding (ECF) is still a new industry. Also, the number of interviewees is small because of convenience sampling. Nonetheless, the findings may still be valuable as this study is exploratory. Positive feedback from respondents can encourage regulators to take more serious actions to develop regulations for Mudharabah-based crowdfunding. Moreover, this funding option could be an alternative way for small and medium enterprises (SMEs) to raise the capital needed for growth. Mudharabah-based crowdfunding could potentially benefit SMEs and promote the brotherhood concept as outlined in the Shariah objectives in finance. While many studies focus on regulators, Shariah experts, and business owners, this research gathers insights from capital providers. It also highlights the challenges faced by these providers in Mudharabah-based crowdfunding.