The Crowdfunding in the Emerging Market: Insight into the Conceptualization and Governing Issues of Crowdfunding

The Crowdfunding in the Emerging Market: Insight into the Conceptualization and Governing Issues of Crowdfunding   

Sharina Tajul Urus^1*, Intan Salwani Mohamed², Zarinah Abd Rasit³, Maslinawati Mohamad⁴

^1,2,3,4Faculty of Accountancy, Universiti Teknologi MARA Cawangan Selangor, Kampus Puncak Alam, Bandar Puncak Alam, Selangor, Malaysia.

²Accounting Research of Institute (ARI HICoE), Universiti Teknologi MARA, Shah Alam, Selangor, Malaysia

DOI: https://dx.doi.org/10.47772/IJRISS.2025.90400044

Received: 23 March 2025; Accepted: 27 March 2025; Published: 26 April 2025

ABSTRACT

Crowdfunding is garnering global attention as it effectively facilitates the advancement of innovative ideas and initiatives that are unfeasible to finance through conventional fundraising sources, such as financial institutions. As a widely acknowledged alternative for entrepreneurs to secure funding, it is crucial to identify the aspects that contribute to the success of this fundraising channel. The previous literature has recognized the crowdfunding evolvement, features, and effect but has not yet provided a comprehensive conceptualization and manifestation. The governing issues of crowdfunding are also still worth further investigation. Based on the prior review of literature review, this paper aims to unfold the conceptualization, manifestations and governing issues of the crowdfunding in the emerging market in-depth. Additionally, this study intended enhance the literature by raising awareness regarding its significance and ramifications within the Malaysian capital market. As paper also sheds some light on crowdfunding research areas by identifying the governing issues surrounding the practices and offers insights into some of the valuable impact of crowdfunding initiatives in emerging countries. From a practical perspective, the contribution in the form of a recommendation on how crowdfunding could be utilised optimally would positively impact the ecosystem of the emerging market, especially Malaysia, and contribute to the national agenda.

Keywords: Crowdfunding, Crowdfunding Conceptualization, Crowdfunding Governing Issues, Impact of   Crowdfunding, Emerging Market, Malaysia

INTRODUCTION

The financial markets are susceptible to abrupt fluctuations. The COVID-19 pandemic is one of the crises that significantly affected the economy. During this period, entrepreneurs and businesses need to seek new alternatives to finance their projects rather than relying on the usual financing channels. In periods of significant economic uncertainty, investors tend to be more bearish, which leads to the decline of angel investments and the withdrawal of venture capitalists from the new-venture market segment (Hsieh & Vu, 2021). Crowdfunding is one solution available that has been gaining popularity in the past decade (Abdul Razak et al., 2021; Chandler et al., 2021; Ishak et al., 2024). Crowdfunding has sparked interest all around the world as a financial mechanism for traditional fundraising techniques for social projects or economic endeavours. In recent years, researchers have widely employed and studied the concept of crowdfunding. Crowdfunding is viewed as a current expression pertinent to the digital financial scene; nonetheless, the notion of crowdsourcing exists way earlier in many different forms. Instead of getting money or funding for their projects from traditional sources like banks or venture capitalists, crowdfunding uses crowdfunding principles to set up ways for the community to raise funds (Shneor et al., 2020). Mohamad et al. (2020) postulated that crowdfunding is “the act of performing a task typically assigned to a designated agent (an employee) and outsourcing it to an unspecified, generally extensive group of individuals through an open call.” The difference between crowdsourcing and crowdfunding is that crowdfunding emphasises information and user preferences.

Nonetheless, crowdsourcing can serve other purposes, including financial help, charitable donations, or disaster relief efforts.

In Western economies, crowdfunding is not new in the global capital markets. Communities united to accomplish specific objectives, usually through financial resources. In the US, the construction of the Statue of Liberty in 1886 exemplifies an early instance of crowdfunding. A total of 101,091 USD, equivalent to almost 3 million USD in current currency, was raised to support the podium and assembly of the statue (Ryu, 2019). The latest trend predicts that the global crowdfunding market is set to reach US$ 5.43 billion by 2033, up from US$ 1.45 billion in 2024, with a CAGR of 15.82% between 2025 and 2033 (Radzi et al., 2024). In recent decades, crowdfunding has progressed due to the advent of financial technologies (Fintech), with ongoing advancements facilitating the financing process and simplifying project fundraising for individuals (Miglo, 2021).

Malaysia, too, acknowledges the significance of crowdfunding. The Malaysian government and various commercial entities have demonstrated their commitment to integrating crowdfunding into the local fundraising ecosystem. Currently operationalised are the top 5 crowdfunding startups in Malaysia: (1) PitchIN, (2) Ethis, (3) MyStartr, (4) SimplyGiving, and (5) Global Sadaqah (Tracxn.com, 2025). In Malaysia, the crowdfunding sector remains in its nascent phase of development (Zahari & Azmi, 2019; Othman et al., 2021). According to the Asian Institute of Finance (2014), public knowledge and willingness to participate in donation-based crowdfunding are low. In terms of the donation’s objective, Malaysians are adamant that the money would be used to assist the community in generating funds, reducing poverty, and providing assistance to homeless people and others in need. This is reflected in the World Giving Index 2015, which ranks Malaysia as the tenth most generous country among 145 countries in 2015 (Othman et al., 2021). However, in the recent statistics from the World Giving Index 2024, Indonesia has become the top of the chart among over 140 countries listed, whereas Malaysia is absent from the top 10 of the rank (WGI Report 2024).

Crowdfunding is a method of raising capital through the collective contributions of individuals. This concept is not novel; however, it has garnered increased attention mostly in the last decade. Contemporary crowdfunding emerged around 1997; thereafter, it witnessed exponential expansion (Soreh, 2017) and provided a remedy for funding-related obstacles faced by individuals and organisations in the creative industry. Back then, crowdfunding endeavours were considerably more challenging and cumbersome, particularly due to the lack of digitalisation. The crowdfunding strategy was necessitated to rely on traditional channels, such as newspapers and interpersonal communication (Soreh, 2017). The advent of FinTech has rendered fundraising efforts and crowdfunding more convenient and cost-effective (Halim, 2024). By utilising a straightforward device linked to the internet and employing strategic marketing, any sufficiently persuasive individual can secure funds through numerous crowdfunding platforms. Crowdfunding platforms like Kickstarter, GoFundMe, and Patreon have recently garnered significant support for their trustworthiness as creative non-bank intermediaries between investors and entrepreneurs (Johan & Reardon, 2024; Regner, 2021). Since their establishment in 2007, the number of crowdfunding platforms has consistently increased, stabilising at approximately 300 active platforms, according to a study conducted on OECD nations (Cumming et al., 2024).

In Malaysia, realizing the finance sector is now greatly digitalized, the Securities Commission of Malaysia (SC) has issued specific guidelines after several efforts and open discussions with interested stakeholders. The Securities Commission of Malaysia, which is in charge of the Capital Markets and Services Act 2007 (CMSA 2007), added new rules a few years ago for how Equity Crowdfunding (ECF) platforms 26 could be registered and how their operators would be governed. It also issued the regulatory framework for peer-to-peer financing (P2P). 27 The new rule was released on February 10, 2015, as part of the Guidelines on Regulation of Markets under Section 34 of the Capital Markets and Services Act 2007. The goal was to bring back the Guidelines on Regulation of Markets that were released in September 2007. In a recent development, the Securities Commission Malaysia (“SC”) has issued the revised Guidelines on Recognised Markets (“Revised Guidelines”) that came into effect upon its issuance on 6 February 2024. The Revised Guidelines is the eleventh revision of the guidelines and supersedes the 10th revision of the guidelines issued on 19 April 2023 (Lee & Kheong, 2024). Malaysia is the first country in Southeast Asia to have a proper framework for regulating crowdfunding. As of now, only equity crowdfunding (ECF) and peer-to-peer (P2P) lending platforms are properly regulated, which is in line with how crowdfunding is usually regulated (Ishak et al., 2024; Tambi et al., 2022) that is aligned with typical regulatory practices on crowdfunding.

Amongst the heightened risks in investing in a crowdfunding project rests mostly on the investors, yet it was noted that the effort of regulating this type of financing remains lacklustre. For instance, Macchiavello & Valenti (2022) reported that non-financial returns of crowdfunding models such as donation-based and reward-based crowdfunding remain primarily unregulated and unsupervised due to the lack of reliability or being considered unsafe for investors. As crowdfunding gains, the majority of its funding from retail investors, it may lack some insight into investing in this type of project. Hence, investors need to educate themselves and assess each crowdfunding project with extra scrutiny. This is because, despite its various perks, crowdfunding practices have their issues and challenges. Understanding the different types and the nature of how crowdfunding operates helps investors make better decisions. Furthermore, crowdfunding markets also have proliferated in emerging nations, where practices and regulations may differ significantly. Before the global economic slump, those emerging economies had undergone swift economic expansion, but their economies remained somewhat vulnerable. The deficiency in the analysis of crowdfunding in these types of markets becomes pertinent, given the substantial number of emerging economies that have established or are in the process of establishing crowdfunding rules.

This paper aims to help unfold crowdfunding’s conceptualisations, manifestations, and governing issues, as well as the impact of crowdfunding future in emerging markets. The paper first underscores the relevance of crowdfunding in promoting economic growth and transformation. This paper also sheds some light on crowdfunding research areas by identifying the governing issues surrounding the practices. We then reflect on the insights gained from the subsequent discussion to underscore the valuable impact of successful crowdfunding initiatives. From a practical perspective, the contribution in the form of a recommendation on how crowdfunding could be utilised optimally would positively impact the ecosystem of the emerging market, especially Malaysia, and contribute to the national agenda.

In the following section 2, the crowdfunding conceptualisation will be discussed surround its definition, players and types of models, and benefit and challenges. Section 3 will elucidate the evolution and advancement of crowdfunding, particularly within the emerging industry. Section 4 presents the regulating issues of crowdsourcing, followed by the significant impact of successful crowdfunding activities in section 5. Section 6 provides the concluding remarks.

Crowdfunding Conceptualisation

What Is Crowdfunding?

Crowdfunding are one of the financing methods that gained a lot of popularity in the digital age. In simple term, crowdfunding can be understood as a collaborative effort by people who network and gather their money together to invest and support on projects that was initiated by other people or organizations (Ryu, 2019). Raising funds from crowdfunding can be simpler while also offer a lot more flexibility on what the entrepreneurs can offer to their investors. Not to mentioned, relying on the usual financing methods during the period of uncertainty and high inflation can be a huge commitment and a burden to many entrepreneurs. Wang et al. (2023) highlighted a few unique features of a crowdfunding market. First, unlike other e-commerce product listings, crowdfunding projects are limited by a fixed time frame. It is a fundraising campaign that has a completed roadmap and set deadline. Second, backing decisions made by the contributor are characterized by delayed gratification, this means that the completed rewards or products promised only available after the campaign deadline.

Crowdfunding is also characterised as an innovative financing approach for ideas, businesses, or projects that involves acquiring several small contributions from various individual investors, usually via online platforms (Wan Mohamad Nazarie & Williams 2021, Cicchiello & Kazemikhasragh, 2022). In the other context, Kasri & Indriani (2021) described crowdfunding is defined as an open call, primarily via the Internet, for financial contributions, either as donations or in exchange for future products, other rewards, and/or voting rights. Kamarubahrin et al., (2023), suggested crowdfunding includes ‘the solicitation of financial donations from a vast number of individuals, particularly within the online community’. It has gained prominence and efficacy as a method for financing arts, video games, and certain technological items.

Players of Crowdfunding

Identifying the key players within a crowdfunding project is important to understand how crowdfunding operates. Arzam et al. (2023) stated that there are three main players in a crowdfunding project, namely (1) the creator, who establishes the crowdfunding campaigns and asks for funds from the crowds. (2) Investors or contributors, depending on the type of crowdfunding model, can be donors, lenders, or financial contributors who provide monetary funding or other resources to support the crowdfunding project. (3) platforms—typically, an organization that provides an outlet or, in a digitalized world, a web-based means to connect the creators with investors. By bringing the creators and contributors together, crowdfunding platforms act as a two-sided market, boosting participation from both communities. It is an industry where a central outlet is required to serve as a mediator to link two or more customers impacted by network effects between different user groups (Trabucchi & Buganza, 2022). The aim here is to ensure a streamlined flow of information between both parties and provide a safe and reliable space for funds to be transferred (Astebro & Penalva, 2024). Figure 1, below, summarises the crowdfunding process.

Figure 1: Key players and their role in crowdfunding

Source: (Ryu, 2019)

Manifestation of Crowdfunding Models

This subsection categorizes the various types of crowdfunding models that exist in the ecosystem today. The in-depth description of donation-based, reward-based, equity-based, and lending-based crowdfunding, illustrated with the unique features attached to each model. It also provides how the illustrative models operate in the setting of initiated crowdfunding campaigns. This classification and details on the unique points of each type could produce a nuanced background on the evolving crowdfunding activity and issues. It is well known that the four types of models mentioned above are highly popular and adopted in the crowdfunding market (Miglo & Miglo, 2018), so they are specially coined.

A crowdfunding project can be categorised into four different distinct models: donation-based, reward-based, equity-based, and lending-based, as follows:

Donation-based Crowdfunding – In this model, contributors provide monetary resources to support a cause, project, or initiative without expecting any rewards or products in return.

Most of the time, it is used for charitable, social, or creative projects where contributors are driven by altruism or personal attachment to the cause (Othman et al., 2021). Donation-based crowdfunding is a model designed to raise funds through donations, microfinancing, and social causes (Rijanto, 2022). A fundraiser essentially requests the support of others for a specific project. This model operates on the power of crowd-giving, whereby funders do not expect to receive anything in return for their donations. Yet, business owners who want to raise money through crowdfunding without private claims need to come up with non-monetary incentives like invites to visit the project being backed, mentions, or simple thanks as a way to make sure they get the money (Rijanto, 2022; Boudreau, Jeppesen, Reichstein & Rullani, 2021). In a nutshell, donation-based crowdfunding is primarily meant to raise money for a charitable cause

Reward-based Crowdfunding – Contributors fund a project for non-financial rewards. For example, they gain early access to a product, exclusive merchandise, or other incentives. This model can be commonly seen in creative projects, startups, or innovative products (Othman et al., 2021). Reward-based crowdfunding is seen as a pre-order mechanism wherein fundraisers seek financial support on a crowdfunding platform to finance their goods. Funders will obtain a designated product edition as a reward (Cox & Nguyen, 2018). Reward-based crowdfunding leverages online platforms like Kickstarter and Indiegogo, benefiting from the digital revolution (Liu et al., 2021; Dehdashti et al., 2022). Unlike donation models based on philanthropy or debt crowdfunding with interest returns, Reward-based crowdfunding focuses on tangible rewards (Alshater et al., 2024).

Equity-based Crowdfunding – Contributors in this model provide funding to a business or project in exchange for shares or equity in the company. This model allows contributors to potentially receive financial returns if the crowdfunding business succeeds. It is commonly used by startups and small businesses seeking capital (Othman et al., 2021). When a company seeks money from a collective of individuals instead of a business angel or another private investor, this is termed equity crowdfunding or crowd investing. Certain funders have a distinct preference for projects that align with their values, foster local engagement, or create employment opportunities within their communities (Sharif et al., 2018). Others possess a comprehensive understanding of the market, project, or firm and seek to offer capital and expertise to ensure the initiative’s success. This closely resembles the practice of business angels. Equity crowdfunding encompasses equity-like arrangements wherein the “funder” functions solely as a creditor with a contractual entitlement to get compensation equivalent to equity (shares) and when the “funder” is merely a creditor with a contractual right to obtain such remuneration (Abdullah & Bakri, 2021). Through equity-based crowdfunding, investors receive equity in the start-up company in which they are investing (Ahlers et al., 2015; Mamonov & Malaga, 2019).

Lending or Debt-based Crowdfunding – Also known as peer-to-peer (P2P) lending, in this model, contributors lend money to individuals or businesses with the expectation of being repaid with interest over time. It functions like a normal loan, but instead borrowing from traditional financial institutions like banks, the creators can gain funds directly from lenders without many red tapes. It is often used for personal loans, small business financing, or real estate projects (Othman et al., 2021). According to Othman et al. (2021), lending-based crowdfunding entails obtaining funds from a collective of individuals instead of a traditional banking institution. The function of the platform can differ significantly; certain platforms serve as intermediaries and facilitate repayments to lenders, while others function solely as matchmakers, connecting borrowers and lenders only once the transaction is finalised.

Benefits of Crowdfunding

Benefits

The benefits of crowdfunding extend beyond simple fundraising mechanisms (Nucciarelli et al. 2017). The principal objective of crowdsourcing campaigns is to secure funding; however, they may also provide additional advantages to the involved parties (Bernardino, Santos, 2020; Troise, Tani 2021). Although previous studies have been conducted on crowdfunding, the focus of the studies was not on the multi-dimensional impact of crowdfunding (De Luca et al.2019).

The main focus of earlier studies was on the purely financial benefits of crowdfunding (Belleflamme et al. 2015). Nonetheless, the advantages of crowdfunding percolate to the strategic assistance it offers to fledgling enterprises and its capacity to facilitate creative business initiatives (Rossi 2014). Previous studies have opinionated the crowdfunding serves as a platform for identifying prospective employees; in today’s highly competitive landscape, it presents an opportunity to garner public attention (Ramos 2014; Mollick 2014). Crowdfunding serves as a mechanism to evaluate a business concept. Individuals invest solely in ideas they perceive as viable (Lehner et al. 2015). Therefore, individual investments serve as a validation of the suggested business concept. Research has indicated that crowdfunding can facilitate client acquisition (Hu et al. 2015), enhance the exposure of new ventures (Burtch et al., 2018), and promote consumer connection (Gruner and Homburg 2000).

Crowdfunding campaigns are available online and can attract investors/supporters from all over the world, which allows project developers to acquire new customers or supporters, expand the community built around a given product, project or service, increasing its recognition (Estrin et al., 2018, Yang, Lee, 2019). Crowdfunding can be an effective tool for increasing public awareness and involvement, focusing attention, for example, on cultural heritage protection projects through social media. An example of such a campaign was the campaign to protect the historic ship HMS Bronington in Great Britain (Candid, 2023). Crowdfunding promotes innovative and creative ideas by inspiring others to innovate (Troise et al., 2023). Thanks to the “Flow Hive” campaign, a beekeeper from Australia was able to start producing a revolutionary method of obtaining honey, inspiring many people to become interested in beekeeping and innovative technologies in agriculture, but also to look for innovative solutions in their fields of activity (Indiegogo, 2015).

Additionally, some benefits provided to entrepreneurs through crowdfunding is act as an alternative financing mechanism. Crowdfunding, as an alternative financing technique, provides entrepreneurs with numerous benefits. Crowdfunding increases access to capital for under-represented groups, especially young entrepreneurs (InfoDev, 2013; Jenik et al., 2017; Onyango, 2018). Crowdfunding predicts how ideas or initiatives will function in the real world (Sarkar 2016). As a result, fundraisers will have the opportunity to improve and validate their business proposals (Adhikary et al., 2018). Entrepreneurs utilise crowdfunding to verify market potential and increase client acceptance (Schwienbacher & Larrade, 2010; Lambert & Schwienbacher, 2010). Crowdfunding is also used as a marketing technique to raise brand and product awareness and obtain honest client feedback (Manchanda & Muralidharan, 2014). Crowdfunding eliminates geographical constraints, allowing entrepreneurs to raise funds from both local and international investors (Agrawal et al., 2011). For instance, the online crowdfunding campaigns have the potential to draw in investors and supporters from around the globe, enabling project developers to get new clients or supporters, grow the community centred around a particular project, service, or product, and raise its profile (Oestrin et al., 2018, Yang, Lee, 2019).

Crowdfunding gives investors the opportunity to support initiatives or projects that interest them (Olivia et al., 2019). Investors can influence the development of a given project, for example by suggesting changes or providing opinions about a product or service (Di Pietro et al., 2018). Some types of crowdfunding (reward-based) offer rewards in the form of a final product that can be attractive to collectors or fans therefore enables exclusive offers, products or valuable networks (Troise, Tani, 2021). Both supporting investors and originators can derive personal satisfaction and the feeling of contributing to the creation of something valuable. From the point of view of an investor who engages his/her funds in crowdfunding, he/she has a chance to share in the profits (equity-based) or return on investment (debt-based, Troise et al., 2021). However, he/she should remember about the risk associated with this type of investment (Hoegen et al., 2018).

The continuous advancements in FinTech improve the experience associated with this financing method. The type of model employed in crowdfunding can provide new insights into its potential benefits. The benefits extend beyond the players within the crowdfunding network to encompass the entire economy. The primary advantage of crowdfunding is its facilitation of capital access (Babich et al., 2020; Yeon & Putri, 2022). Lend-based crowdfunding enables the acquisition of new funds with reduced bureaucratic processes, while reward-based crowdfunding permits creators to secure funding without relinquishing equity. Prior research has indicated that the crowdfunding method provides creators with increased flexibility and creative autonomy in managing their projects (Hoque, 2024; Schöttl et al., 2023). The innovative nature of crowdfunding projects can stimulate new ideas and products. A direct flow of information and constant feedback between creators and contributors also help improve productivity and technical efficiency, as well as reduce labor resources (Tan et al., 2022). Gupta et al. (2023) highlighted how crowdfunding platforms can help projects provide exposure and gain wider reach. While this may apply to all types of models, community-centric crowdfunding, like reward-based and donation-based crowdfunding, gains the best effect by empowering small individual contributors to support the cause they are passionate about (Breeze et al., 2023).

Development of Crowdfunding 

Crowdfunding in the Emerging Market

Embracing financial technologies and innovations helps increase efficiency, productivity and improve livelihoods in all different income levels (Xia Loh et al., 2021). While they are vulnerable to economic changes and have higher financial risks, emerging markets offer huge growth potential. This includes growth in the use of FinTech and digital economy. Crowdfunding are one of the financing methods that gained a lot of popularity in the digital age. Securing capital through crowdsourcing can be more straightforward and provides greater flexibility about the offerings available to investors. Moreover, depending on conventional finance techniques during times of uncertainty and elevated inflation might impose significant obligations and burdens on numerous entrepreneurs.

Entrepreneurs in emerging markets face a world very different from that faced by entrepreneurs in developed countries. Though displaying high vibrancy and dynamism, economies in the emerging markets nevertheless face several constraints that inhibit their further growth and development. The severe shortage of capital has always been a fundamental constraint. Unlike entrepreneurs in well-developed capital markets who can take advantage of the existence of venture capitalists, angel investors, and the stock market for both equity and debt financing of new ventures, obtaining fund for new startups remains a serious problem for entrepreneurs and newsmakers in the emerging markets (Soreh, 2017). Due to the information asymmetry and the risk in new projects or startups, neither of the traditional debt and equity financing institutions, such as banks and venture capitalists, has shown an inclination toward entrepreneurship, particularly for individual entrepreneurs or very small startups.

In contrast, the crowd around the entrepreneur and newsmaker typically cannot effectively mobilize the financing for novel startup ideas. The potential of crowdfunding in emerging markets, a financing approach that enables entrepreneurs, innovators, and changemakers to raise capital from a large number of people, usually over the Internet, has emerged as a solution to democratize the resource access for a broad array of projects. Wang et al. (2023) highlighted a few unique features of a crowdfunding market. First, unlike other e-commerce product listings, crowdfunding projects are limited by a fixed time frame. It is a fundraising campaign that has a completed roadmap and set deadline. Second, backing decisions made by the contributor are characterized by delayed gratification, this means that the completed rewards or products promised only available after the campaign deadline.

Crowdfunding in Malaysia

Malaysia can be considered as one of the main economic players in the Southeast Asian region, but despite that, our economy can still be considered as an emerging market in the global scale (Bank Negara Malaysia, 2024). The practice of crowdfunding in Malaysia is not uncommon. However, most of the “official” crowdfunding platforms remains unknown to the mainstream audience. Platforms like PitchIn, Funding Socities, Mystartr, and SimplyGiving still remain unknown to most Malaysians because of the low acceptance level and common people having no knowledge on how crowdfunding operates (Ramli et al., 2023; Salim et al., 2021). Many small entrepreneurs and project organizers still rely on other common source of finance. Despite that, the Malaysia government is still continuing their efforts to promote the practice of crowdfunding as a reliable alternate way of financing projects and businesses. One example that can be observed is that, under The Income Tax (Exemption) (No. 4) Order 2022 (Amendment) Order 2024, the Malaysian government has given a 50% income tax exemption to ECF investors on the total income corresponding to the invested amount (EY, 2023). This will not only help creators gain a larger pool of funding, but also stimulate contributors to invest more.

Unique Scenario of Crowdfunding in Malaysia

While all types of crowdfunding practices exist in here, Malaysia’s unique Islamic finance environment gave rise to Islamic crowdfunding model. The altruistic nature of crowdfunding resonates well with the ideals of Muslim community. Some crowdfunding practices are in line with Islamic finance principles, this includes risk-sharing, funding real economic activities and provide monetary support for the development of the community (Ramli et al., 2023). Some registered crowdfunding platforms such as Nusa Capital, Ethis, and Wahed are few examples we can observed in Malaysia, they are taking initiative by embracing Shari’ah principles in their crowdfunding activities in order to attract more Muslim customers (Capital Markets Malaysia, 2023). Salim et al. (2021) stated that one of the unique features of Islamic crowdfunding platforms is that, Sharia’ah board exist within the company to give council and ensure all crowdfunding activities are in line with Islamic principles, they are the fourth key player in addition to the existing players. The Crowdfunding models and their Islamic alternative contract is depicted in Table 1 below.

Table 1: Crowdfunding models and their Islamic alternative contract

Source: (Ramli & Ishak, 2022)

Under the guidelines on recognized markets, SC has introduced a regulatory framework for equity crowdfunding (ECF) and peer-to-peer (P2P) lending platforms. This is to ensure that good governance must always be followed by ECF and P2P lending platforms and protect the well-being and rights of all parties involved. Capital Markets Malaysia (2023) reported that there are currently at least 20 ECF and P2P lending platforms registered with the SC. In addition, these ECF platforms has helped raise RM686.69 million through 381 campaigns since its establishment to December 2023, while P2P lending sites display a more impressive number by raising around RM5.96 billion through 85,793 successful campaigns as at December 2023.

Governing Issues of Crowdfunding 

Fraud and Scams

Fraudulent activities especially in digital environment are common. While FinTech can offer a lot of new innovations in the financial industry, the complexity and technical nature of it can provide opportunities for nefarious parties to commit crimes. Crowdfunding platforms are known to be vulnerable to fraudulent activities and scams (Othman et al., 2021; Takeda & Ito, 2021). Perez et al. (2022) stated that these scams came in many different types, criminals involved in crowdfunding scams are prosecuted as theft by swindle, larceny, wire fraud, failure to make required distribution of funds, mail fraud, felony grand theft, and other related offences. Based on past cases, crowdfunding scams are mainly committed by the creators, with contributors as their victims. Menyeh & Acheampong (2024) explained how the lack of face-to-face interaction and geographical separation between different players within a crowdfunding network foster the environment where fraudulent opportunities arise. Besides that, majority of crowdfunding contributors were retail investors who have little to no knowledge on how to detect fraud and operate in uncertain environment.

One recent example that gained traction around the world was JuicyFields’ crowdfunding scam. It was a crowdfunding project aims to promote the cultivation of medical cannabis. It has been reported that almost 200,00 contributors have been scammed and prosecutors estimate the losses to amount to approximately 684 million USD (Sabaghi, 2024). Another example we can observe in Malaysia was a donation-based crowdfunding scam that happened on JomDonate platform, it has been reported that The Malaysian Anti-Corruption Commission (MACC) has arrested a married “influencer” couple for misusing a charitable fund of RM740,00 for their personal use (Lim, 2024). Table 2 highlighted some of the other popular crowdfunding frauds that has happened in recent years.

Table 2: Popular crowdfunding scam cases in recent years

Source: (Alruwaili & Kruger, 2020; Bertsch & Rosenvinge, 2019; Federal Trade Commission, 2019, 2022; Jiménez, 2023; Schiavone, 2017)

Mismanagement and overfunding

Crowdfunding projects often have higher inherent risks due to it being associated with innovation (Hoque, 2024). The philanthropic nature of crowdfunding can act as a double-edged sword, while it is an excellent alternative financing, it can be prone to mismanagement by the creators. Mismanagement can come in many different ways; some occur through the misallocation of funds for other or personal use while others through poor administration and planning (Bayraktar, 2022; Jing & Li, 2024). Running a crowdfunding project was never about being as efficient as possible, it is about how to deliver the product or promise being made. Nevertheless, a certain standard of quality and efficiency must be followed to ensure that project was not a total disaster. Gooch et al. (2020) stated that technical expertise are needed in many departments to ensure a smooth run of a crowdfunding project, it is more than just being an IT expert and proficient in marketing. Crowdfunding projects that met their funding goal does not guarantee a success. Overfunded projects also issue is another heighten issues. People, especially those from the financial background might see an overfunded project as a good thing, signifying that the project is “healthy”, but it can go either way. Reichenbach & Walther (2021) indicates that large investments are positively related to the probability of failure. Pinkow (2022) reported that successful projects typically achieve their funding targets by a relatively narrow margin. Planning and understanding the scope of the project is important to ensure all funds allocated will be managed efficiently. Tenca & Franzoni (2019) stated that projects may incur additional costs such as expenses related to meeting disclosure obligations, legal constitution, or the rising administrative costs.

While creators start with an innovative idea that can attracts contributors, their incompetency can the delay the process or led the project to its eventual failure.  For example, as depicted in Table 2 above, due to high demand for both Coolest Cooler and Zano Drone project failures were due from complexity of production and shipping and lacking of lacking technical expertise and experience (Ryu, 2019). On the other hand, some crowdfunding project like Chopbox   did not fall into “fraudulent” category, but that are so poorly managed that lead to failure. For instance, although Chopbox managed to raise over 2.2 million USD across Kickstarter and Indiegogo and be claimed by their creators as the world’s first smart cutting board did suffer from production issues and had to delay their product for over a year (Albrecht, 2020). Another popular example of crowdfunding that suffers from overfunding and inefficiency is Star Citizen, a multiplayer space adventure simulation video game that has managed raise over three quarters of a billion USD (Holmes, 2025). The project has been ongoing for over a decade, since 2012 and show no signs of stopping. Star Citizen creators only continue adding more features in every update, making the project more complicated. It is reported that the video game will be released in 2026, but many people are sceptical with that estimation due to its infamous reputation of delays.

In Malaysia, numerous crowdfunding initiatives have demonstrated significant success in aiding COVID-19-related efforts. For example, the Kitajaga Kita campaign organised by Global Sadaqah garnered substantial public support, amassing nearly RM100,000 in just two weeks (New Straits Time, 2021). With these funds, they developed and launched new features that facilitated the direct purchase and delivery of essential goods and food to beneficiaries, along with multiple enhancements aimed at improving user privacy and security. Nonetheless, it is important to acknowledge that not all initiatives seeking to finance COVID-19 efforts have garnered comparable public interest (Wan Mohamad Nazarie et al., 2023). The Bakul of Ummah project by KOJUSA failed to achieve its financial objective, securing about RM6,000 over two months, which is much below the targeted RM20,000. This problem has become increasingly evident during the pandemic. The repercussions of the 2020 pandemic have resulted in a discernible trend in which individuals are increasingly predisposed to offer financial assistance via donations. This study will investigate the influence of project quality on the crowd’s faith in the funding intentions of social crowdfunding initiatives (Wan Mohamad Nazarie et al., 2023).

Trust Issues of Crowdfunding. 

Trust, Conflicts of Interest, and Accountability Trust is an essential human quality that relies on the integrity, reliability, and fairness of an individual or institution. The societal and economic landscape is driven by trust. Trust is essential in social interactions, especially during initial encounters or to maintain a reputation-based relationship. Due to the absence of social indicators to denote specific risks associated with technology such as the internet, trust emerges as a critical concern (Nor & Hashim, 2020).  Trust is considered a vital element in the relationship between a seller and a buyer in commerce, and the same applies to crowdfunding. The fundraiser must possess the trust of the funder. The relationship between the project owner (fundraiser) and the funder, for instance in reward-based crowdfunding will foster trust, leading to enhanced sponsorship, emotional connections, and social identifications (Othman, et al.,2021). Further investigation into the interplay between religion and consumer trust reveals their impact on consumer behaviour, specifically with materialism, intolerance, ethics, and risk aversion (Agarwala et al., 2019). Consequently, trust is demonstrated to be an essential component in crowdfunding. In the absence of confidence, fundraisers are unable to secure financial contributions from donors or the or the society as a whole (Othman, et al.,2021).

Conflicts of interest are another crucial circumstance in which an element of trust can be perceived. Both owners or individual financing providers may encounter conflicts of interest when utilising sensitive information to enhance profitability. These conditions must be averted at all costs, and regulations for internet crowdfunding should be duly enforced (Abdullah & Bakri, 2020). Trust and conflict of interest lead to issues on accountability. The accountability of fundraisers, especially the Non-Profit Organisations (NPOs), relates to Functional Expenses Reporting (FER) as a mechanism of disclosure. The disclosure practices of NPOs could be enhanced by providing high-quality information. The lack of best practices for accountability heightens several risk exposures for NPOs, including the potential of fraud. The absence of robust public accountability measures hindered the efficacy of private systems in fostering trust (Bakar et al., 2019).

Lack of Regulation

In some jurisdictions, including Malaysia, the regulations governing community-based crowdfunding, especially donation-based crowdfunding, remain ambiguous (Abdullah, 2016). For instance, in donation-based crowdfunding, donors earn no financial return on their contributions. Nonetheless, there exists the scenario in which the fundraiser pledges to reciprocate via tokens of appreciation, such as the developed products or a “thank you” note. Lee et al. (2019) argued that donation-based crowdfunding platforms operate as an uncontrolled open market with minimal involvement in the fundraising process. Likewise, Saiti et al. (2018) identified that Islamic crowdfunding faces some obstacles in competing with the existing crowdfunding framework. This issue occurs as regulators prioritise the interests of the majority of industry factions. For example, Malaysia governs the crowdfunding sector as a secondary operator by imposing restrictions on the amount of funds raised and the individuals conducting the fundraising. Abdullah (2016) contended that the laws and regulations pertaining to the solicitation of funds for donation-based and reward-based crowdfunding remain in a state of instability. She compared it with other jurisdictions that require registration for charitable collections by any organisation, including trustees or non-profit organisations. Hong (2018) found that there is currently no registration required for this type of crowdfunding. They are not fully regulated; in fact, there are no laws in Malaysia governing such organisations. Therefore, he emphasised that there is a need for non-equity crowdfunding to be regulated.

Ethical Issues

There are also ethical challenges to consider in this rapidly developing crowdfunding phenomena. Ethical policies and procedures are not always transparent on the platforms. Although institutional ethics review is required for projects involving human subjects, it is unclear as to whether projects accessing secondary data have been through ethics procedures. Furthermore, without the platforms supporting ethics review, they undermine their potential for practitioners, service users and independent researchers to apply for funding as they are unlikely to have access to ethical review. Given these challenges, there is something to be said for the rigour of the funding proposals of university and research councils, where the ethical considerations of a project are written in detail and have to adhere to institutional ethics policies and procedures.

There are also ethical dilemmas in crowdfunding research that relate to the decision-making process. Firstly, who are the backers that decide what projects receive funding. For social work research, this of particular importance when you consider calls for anti-oppressive forms of research to include service users’ voices in the selection of the topics that get funding (Rogers 2012). There is also the potential for unpopular or sensitive topics that may be important to fail to get the backing of the crowd. Accordingly, it is important to acknowledge the power of the backers on these sites; first, they have access to the online platform, and second, they have the disposable income available to fund projects. Therefore, these sites could give a greater advantage to the wealthy and the scope they may have to shape research agendas that further their interests.

Social and Techological Implication of Crowdfunding in Emerging Market

In the last decade, crowdfunding has grown to become a global phenomenon that has helped hundreds of thousands of projects across more than twenty industry classifications raise billions of dollars. Despite its widespread use, there is a dearth of academic literature exploring the broader, more fundamental implications of crowdfunding. Emerging markets, including both developing countries and economies in transition, are the geographical focus of this wide-ranging investigation. ​Crowdfunding has emerged as a pivotal financial mechanism in emerging countries, offering both opportunities and challenges that significantly impact their socio-economic landscapes. The social implications of crowdfunding in these regions include:​

Social Implications of Crowdfunding

Amongst the notable social implication of crowdfunding is democratization of capital accessibility in the emerging market.  For instance, crowdfunding platforms enable entrepreneurs and small businesses in emerging markets to access funding beyond traditional financial institutions. Based on Belleflamme et al., (2014), crowdfunding democratises access to capital as it allows heterogeneous entrepreneurs to raise funds that conventional financial institutions may not be able to provide. In that sense, it can foster innovation and empower usually under-represented groups in entrepreneurship. Through the democratization, it allows individuals without extensive collateral or credit histories to obtain necessary capital, fostering innovation and economic growth. For instance, the World Bank highlighted crowdfunding’s potential to expand access to capital for entrepreneurs in developing economies.  ​ Besides, the crowdfunding also help in enhancing social capital and community engagement. For example, Zhang et al (2022) stated by leveraging social networks, crowdfunding campaigns can strengthen community bonds and trust. Contributors often feel a sense of ownership and connection to the projects they support, enhancing social cohesion. Research indicates that social capital significantly influences crowdfunding success, with strong community ties leading to better fundraising outcomes.

Additionally, the crowdfunding enable to promote social justice and inclusion. Crowdfunding has the potential to enhance social justice by creating new economic opportunities and increasing access to financial markets for marginalized groups. By bypassing traditional financial gatekeepers, underserved populations can directly appeal to the public for support, promoting financial inclusion (Hashinaga et al., 2023). Finally, it is impact socially by offering non-monetary benefits that boost the credibility and market validation. Beyond funding, successful crowdfunding campaigns can provide validation and visibility for new ventures. This increased credibility can attract additional resources and partnerships, facilitating further growth and development (Hanafi et al., 2024)

Technological Innovations Crowdfunding Platforms Implication

Technological advancements and changes in consumer behavior in the digital era have transformed the way crowdfunding platforms operate, enabling a more accessible funding culture (Popescul et al.,2020). Crowdfunding platforms have grown significantly in number and creativity, spurred by advances in digital payment systems, the availability of mobile applications, and the continued improvement of internet technology, largely facilitated by the rollout of broadband and mobile communication. Crowdfunding has become a popular way to raise capital for startups, charitable causes, and creative projects. However, traditional crowdfunding platforms face challenges such as fraud, lack of transparency, high transaction fees, and inefficient user engagement.

The emerging technologies, such as artificial intelligence (AI) and blockchain, are transforming crowdfunding by resolving these challenges, increasing efficiency, and bolstering trust between fundraisers and supporters. The advancement of technology, particularly artificial intelligence (AI), has revolutionised crowdfunding platforms by facilitating data-driven decision-making, enhancing user engagement, and mitigating fraudulent behaviours. The utilisation of AI for marketing optimisation and customisation exemplifies this. Kickstarter and Indiegogo employ AI-driven recommendation systems to propose projects to consumers according to their browsing and donation history (Mollick, 2019). This procedure enhances engagement and conversion rates, hence augmenting the likelihood of campaign success. Since the pioneer concept of Indiegogo in 2008 and Kickstarter in 2009, associated platforms and other variations of campaign-type crowdfunding platforms have been introduced in various industries (Popescul et al.,2020).

Additionally. to support different characteristics of fundraising needs, each platform typically maintains its own format standards, workflow, and reward settings. The competitiveness of crowdfunding platforms is highly related to user interfaces (UI) and user experience (UX) designs that can attract funders and project creators to participate. It is of interest to investigate recent technological innovations and evaluate the advanced capability and services of associated platforms. On a related subject, the involvement of startups engaging with data analytics and AI into this area requires attention.

In the other scenario, AI-powered chatbots enable instantaneous engagement and client assistance on crowdfunding sites. These bots address frequent enquiries, aid users in establishing campaigns, and engage with prospective supporters. Liu & Wang (2020) illustrate that the GoFundMe crowdfunding platform employs AI chatbots to aid users in campaign creation, offer donation analytics, and address common enquiries. Consequently, it alleviates the strain on human support staff and improves the user experience. A significant difficulty in crowdfunding is the prevention of fraud. AI-driven fraud detection systems examine transaction patterns, user behaviours, and irregularities to identify potential frauds (Cai et al., 2021). PayPal and Trustap employ AI-driven fraud detection algorithms to oversee transactions on crowdfunding platforms, thereby preventing fraudulent activities and safeguarding donors (Zhang & Chen, 2022).

Recent innovations, such as blockchain technology, improve crowdfunding by offering features like decentralisation, security, and transparency. Blockchain technology removes intermediaries, reduces transaction costs, and ensures the allocation of monies for their designated purposes. Blockchain applications augment the security of transactions in the context of smart contracts. Smart contracts facilitate the automation of crowdfunding agreements, guaranteeing that funds are disbursed solely upon the fulfilment of specified conditions (Buterin, 2014). This mitigates the danger of financial mismanagement. The application, similar to KickICO, a blockchain crowdfunding site, employs Ethereum smart contracts to guarantee the return of backers’ contributions if a campaign does not achieve its aim. This approach fosters trust and accountability inside the crowdfunding.

Conventional crowdfunding platforms such as Kickstarter and GoFundMe serve as intermediaries, imposing substantial fees and regulating fund allocation. Blockchain-based platforms eliminate intermediaries, facilitating direct connections between fundraisers and contributors. Giveth, a decentralised crowdfunding website, facilitates transparent donations without intermediaries, guaranteeing that all money is sent to their designated purposes (Davidson et al., 2018). Blockchain facilitates token-based crowdfunding, wherein contributors obtain digital assets (tokens) in return for their support. This approach, referred to as Initial Coin Offerings (ICOs) or Security Token Offerings (STOs), offers fundraisers an alternative to conventional funding techniques. The Filecoin ICO in 2017 raised $257 million, illustrating the potential of blockchain for large-scale crowdfunding initiatives (Adhami et al., 2018).

Technological advancements have democratized access to funding for entrepreneurs in emerging markets. Crowdfunding platforms enable innovators to secure capital beyond traditional financial institutions, fostering economic growth and innovation (Hoque, 2024). For instance, a comprehensive empirical review highlights how these platforms have opened new avenues for entrepreneurs who previously faced challenges in securing funding through established channels. Besides, the crowdfunding impacted by the ttechnological innovations by influencing home-country technological legitimacy. The technological environment of a country plays a crucial role in the success of crowdfunding initiatives. Yu et.al (2025) postulated that higher home-country technological legitimacy, as measured by indices like the Global Innovation Index, positively affects crowdfunding performance. This suggests that a supportive technological infrastructure enhances investor confidence and project success rates

Another implication pertains to investment behaviour towards Technology Startups. Technological innovations have also impacted investor behaviour in emerging markets. Previous study like Rizwan, Hanif & Khan (2025) found that technological advancements influence investment decisions, highlighting the importance of technological readiness in attracting crowdfunding investments. Moreover, the technological impact of crowdfunding is related to its challenges in adoption, as well as the regulation. Despite the benefits, emerging economies face challenges in adopting crowdfunding due to technological disparities and regulatory hurdles. Research underscores the scarcity of crowdfunding adoption studies in these regions, emphasizing the need for policymakers to address technological and infrastructural gaps to fully leverage crowdfunding’s potential (Kumar et al., 2024).

CONCLUSION AND KEY TAKEAWAYS

Crowdfunding in emerging markets represents a transformative force, reshaping traditional funding mechanisms and fostering financial inclusion. As an alternative means of raising capital, it has empowered entrepreneurs, social enterprises, and marginalized communities to overcome economic barriers and bring innovative ideas to life. However, while the promise of crowdfunding is immense, its success is intertwined with digital infrastructure, social networks, regulatory frameworks, and public trust. The conceptualization of crowdfunding in these markets extends beyond mere financial transactions, it embodies a dynamic socio-economic shift, where communities rally around shared aspirations. This paper offers the conceptualization of crowdfunding and discusses some possible governing issues and the future of crowdfunding in emerging markets. Subsequently, the insights into the social and technological implication of crowdfunding would enhance on overall understanding how the crowdfunding operated in the in the emerging countries is highlighted. The challenges such as regulatory uncertainties, fraud risks, and the digital divide must be addressed to ensure sustainable growth. By refining governance structures, promoting investor protection, and enhancing digital literacy, emerging markets can unlock the full potential of crowdfunding as a tool for economic development and social empowerment. Ultimately, the future of crowdfunding in emerging markets lies in striking a balance between accessibility and accountability. With the right regulatory and technological interventions, crowdfunding can evolve from an alternative financing model into a mainstream engine for inclusive growth, innovation, and shared prosperity.

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