INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
Page 8451
www.rsisinternational.org
Exploring the 'Normal Investor' in Islamic Finance: A Behavioural
Finance Approach to Mudharabah-Based Crowdfunding.
Noreena Md Yusoff*
Faculty of Accountancy, UiTM Selangor
*Corresponding Author
DOI: https://dx.doi.org/10.47772/IJRISS.2025.910000687
Received: 28 October 2025; Accepted: 07 November 2025; Published: 21 November 2025
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.
Keywords: Islamic crowdfunding, Mudharabah-based crowdfunding, Rabb al-mal, Behavioural Finance theory,
Malaysia
INTRODUCTION
Malaysia and crowdfunding were still in infancy; however, about RM199 million has been raised in the last five
years through equity crowdfunding (ECF) (Serendeko, 2021). It shows that ECF was developed and accepted as
an alternative to the current financing facilities in Malaysia. Even though the numbers do not distinguish between
Shariah-compliant and non-Shariah-compliant crowdfunding, the positive impact of crowdfunding appears to
have been realised among investors.
Based on Business News Daily (2021), European Commission (2022), and several other websites, ECF can be
referred to as crowdfunding campaigns that allow backers to own a portion of the supporting company. The
investors are entitled to receive the return for the investments, like shares or venture capital investments. In
contrast, Salizatul Aizah et al. (2018) stated that Islamic ECF might utilise Mudharabah or Musharakah contracts.
For Musharakah, it is the same as conventional ECF and stock investment. On the other hand, with Mudharabah
crowdfunding, the funder will provide 100% of the capital, and all the management and operational activities will
be based on the company. For the profit, both ECF based on Mudharabah and Musharakah will be distributed
according to the pre-agreed ratio. Regarding loss, Musharakah partners need to divide the loss based on their
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
Page 8452
www.rsisinternational.org
proportion of capital contribution. Meanwhile, for Mudharabah, the funder will bear the monetary loss, and the
firm will lose its effort.
According to Forbes (2019), fledgling businesses have five different financing options. These enterprises could
use angel financing, crowdfunding, small business credit cards, venture capital, and small business loans to fund
their operations instead of relying on their owners' savings. Each strategy may have advantages and
disadvantages. Furthermore, according to the Organisation for Economic Co-operation and Development
(OECD) (2015), businesses can use traditional debt financings such as loans, asset-based financing, bond
issuance, crowdfunding, and equity and hybrid instrument issuance. On the other hand, traditional funding would
be problematic for the new business due to its high-risk-return profile. As a result, they will need to look for other
funding sources. Metelka (2014) mentioned that the financing gap for start-up businesses could be bridged
through crowdfunding. Thus, several studies have suggested that crowdfunding. Specifically, ECF is the most
excellent answer for new start-up enterprises (Muhammad et al., 2021; Maryam et al., 2021; Maya et al., 2020;
and Salizatul Aizah et al., 2018). However, these studies were conducted from the perspective of businesses.
Muhammad Sharul Ifwat and Md Habibur Rahman (2021) found that Mudharabah is still not an ideal instrument
for ECF. They also listed several arguments to support their findings, such as the high risk for capital providers,
insufficient regulations, the possibility of fraudulent projects, and the structure of Mudharabah itself as a profit-
sharing contract. Furthermore, they proposed mitigation planning, such as using Fintech to monitor the project
closely, improving the regulatory aspect, and creating awareness among all parties about the Mudharabah
contract. Finally, they also suggested that Islamic ECF using Mudharabah is suitable for financing micro-
enterprises, especially less risky ventures like the food and technology sectors. According to Dzuljastri, Syamsu,
and Qosdan (2021), Islamic crowdfunding based on Shariah principles provides an alternative avenue apart from
banking. From these studies, it can be concluded that Mudharabah-based crowdfunding can be implemented;
however, potential investors must support it. Therefore, the present study focuses on assessing the expectations
of potential investors (rabb al-mal) in Mudharabah-based crowdfunding.
Including the behavioural finance theory (BFT) in the study concerning investors and investment opportunities
would be beneficial. According to Statman (2008), the main idea influencing the behavioural finance theory is
that several behavioural factors influence market participants to spend, save, and invest their money. The theory
assumes that market participants are rational and that their aim in finance is to increase utilitarian, expressive,
and emotional benefits (Statman, 2014). Thus, how the potential rabb al-mal behaves when considering
Mudharabah-based crowdfunding is essential to determining the success of a crowdfunding arrangement.
From the above two paragraphs, the problem statement for this study can be derived. Mudharabah-based
crowdfunding has the potential to be an alternative financing facility for small ventures. However, the potential
was marred by high risk, dishonest business owners, a lack of awareness among the investors, and a lack of
regulations. As many previous studies were conducted from the perspective of business owners and regulators,
this study will focus on investors. On top of that, the respondents' behavioural factors were expected to enhance
the reported findings. Therefore, the research questions and research objectives for this study are as follows:
Research Questions
1) How do potential investors view Mudharabah-based crowdfunding opportunities in Malaysia?
2) What challenges do potential investors face in Mudharabah-based crowdfunding?
a) How can the challenges be reduced for Mudharabah-based crowdfunding to be in place?
3) How do potential investors make investment decisions, especially in Mudharabah-based crowdfunding?
Research Objectives
1) To assess potential investors' views on Mudharabah-based crowdfunding opportunities in Malaysia.
2) To identify the challenges and solutions for Mudharabah-based crowdfunding.
3) To explore the behaviours of potential investors in choosing the investment instruments.
This study was expected to contribute practical implications and social implications. For practical implications,
it could add one more innovation in financing alternatives to small ventures by focusing not on financial
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
Page 8453
www.rsisinternational.org
institutions but on public involvement. On top of that, feedback from respondents can be used as guidance for the
regulator in developing the regulations for Mudharabah-based crowdfunding. In addition, for social implications,
it could promote the concept of brotherhood as one of the value propositions of the Islamic financial system.
LITERATURE REVIEW
Mudharabah-Shariah contract
As cited from ISRA (2016), the word Mudharabah derives from the phrase "al-darb fi al-ard," meaning to make
a journey. It is a partnership-based contract that requires one partner to make a journey. Two terms represent this
contract: Mudharabah by Hanafi and Hanbali scholars and Murqaradah by Maliki and Shafi'i scholars.
Muqaradah comes from the word qarada, which means "to cut off". In this partnership, qarada refers to when
the capital provider cuts off some of their money for business activities to be utilised by the business owner.
With reference to Mufti Mohammad Taqi Usmani and Mohammed Obaidullah, the Academy for International
Modern Studies (n.d.) defines Mudharabah as a special kind of partnership where one partner (rabb al-mal) gives
money to another (mudharib) for investing in a commercial enterprise. As rabb al-mal in the Mudharabah
contract, one should understand that they should not interfere in any management decision of the mudharib. This
feature will allow the mudharib to utilise the money contributed by the rabb al-mal. Thus, rabb al-Mal will be
exposed to moral hazards and adverse selection (Noraina & Mohammad Rahmdzey, 2019).
The bankers are rabb al-mal in the banking system, while business owners are mudharib. For bankers, it is highly
risky to invest in Mudharabah contracts as they are exposed to the loss of return and capital. However, the risks
can be reduced by imposing mudharabah muqayyadah (restricted mudharabah) (Muhammad et al. Rahman,
2021). Under this type, the mudharib must abide by the terms and conditions as stated by Rabb al-mal, such as
the type of business, investment period, location, etc. The contract is valid if the Rabb al-mal does not intervene
with the mudharib in his operation (ISRA, 2016).
Nevertheless, Mudharabah was widely used among the Arabs in Mecca before Islam. The Arabs brought goods
from India and Yemen and sold them to the Roman Empire. The merchants will become the mudharib to finance
the trading, and the communities will become rabb al-mal. This contract was later recognised in Islam. In
addition, all Muslim scholars agreed with this Shariah contract in fiqh muamalat (ISRA, 2016).
Equity-based crowdfunding and Mudharabah-based crowdfunding
Equity-based crowdfunding is an alternative method for new businesses, especially Small and Medium
Enterprises (SMEs), to raise funds from the public. However, these businesses typically have higher risks and
give higher returns. Using a registered online platform with the Securities Commission Malaysia (SC), small
businesses can offer equity in their companies to investors, and investors can diversify their investments beyond
traditional asset classes. Ten ECFs have been registered in Malaysia. However, despite the advantages of ECF,
Wilson and Testoni (2014) stated that ECF is the most complicated model to be implemented. This is because
the investors require proper checks and balances. Otherwise, investors will suffer losses instead of getting a
return.
ECF in Malaysia started in 2016 to respond to the government's call to use technology in the financial services
sector. As of December 2020, RM199.23 million of funds had been raised through equity crowdfunding
(capitalmarketmalaysia.com, 2022). In the same year, SC allowed ECF to operationalise secondary trading. This
announcement encouraged businesses to offer more financial products to the growing online trading community
in the country. To regulate the ECF activities, SC introduced the Guidelines on Regulations of Markets under
section 34 of the Capital Markets and Services Act 2007 in 2015. The guideline stated the regulations on criteria
for ECF platform providers, types of businesses, investors, and the limit of funds that can be raised through ECF,
etc.
Like other segments of modern financial practices, Islamic crowdfunding has emerged as an alternative to
conventional crowdfunding. Maya Puspa et al. (2020) found that entrepreneurs efficiently use Islamic ECF in
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
Page 8454
www.rsisinternational.org
raising capital, although they are quite reluctant to share their business ideas online; thus, the authors proposed a
Shariah Equity Crowdfunding (SEC) framework to facilitate the processes. In addition, Syahida and Umar (2017)
found that Shariah-compliant ECF is essential for the sustainability of the halal industry. Both studies suggested
that Islamic ECF can be established in the modern Islamic finance sector to enhance the current financing
facilities. Therefore, the conventional ECF can be replaced with profit and loss-sharing contracts such as
Mudharabah and Musharakah, which are more Shariah-compliant (Muhammad et al., 2021) and Aishath, Nur
Aishah, and Asma' (2018). In contrast, Khaliq, Rizal, and Aimadhuddin (2021) mentioned that even though
Mudharabah and Musharakah are the most encouraged practices concerning investment behaviour, they seem
impossible to implement due to less concern being given by governments, central banks, and industry players.
As for now, all the studies related to Mudharabah-based crowdfunding are in the proposal stage. For example,
Aishath et al. (2018) proposed a framework for Blockchain-enabled Mudharabah Crowdfunding. According to
them, through blockchain technology, the identity of individuals is protected, and the use of smart contracts for
verifications and storage purposes can eliminate the third-party intermediary. In addition, Muhammad Shahrul
Ifwat et al. (2021) proposed using Mudharabah-based crowdfunding as an alternative financing for book
publications. They found that Mudharabah-based crowdfunding can solve the book publishing industry's
financial problems. In other articles, it was proposed that Mudharabah-based crowdfunding can be used to
support micro-enterprises with minor capital requirements (Muhammad et al. and Md Habibur, 2021) and to help
single mother entrepreneurs start the business at home (Farah et al., 2022).
Among all the proposed models, in this study, the author would prefer to use the model by Muhammad Shahrul
Ifwat and Md Habibur (2021). Cited from the article, the explanation of the model is as follows:
1) The project manager proposes his project in detail. He or she needs to provide clear information relating
to the business regarding costs, strategies, and opportunities.
2) The platform acts as a wakil (agent) on behalf of the funders and will review the project in terms of its
credibility and Shariah-compliant aspects. The platform may suggest a few aspects so the project manager
can revise his or her idea. If the proposal is accepted, the platform will launch the campaign.
3) The funders channel their money to the project.
4) Fundraising is launched within a given period. If the amount meets the target successfully, it will be
channelled to the project manager. Because of the Wakalah contract, the platform would obtain the fee
based on the funders' ujrah (fee).
5) After the given period, if the project is successful, the profit must be divided according to the agreement.
On the other hand, if it ends with a loss, funders must bear it, except if the failure resulted from the
negligence of the project manager.
The respondents were asked a few questions based on this model in the semi-structured interview session. The
respondents are potential capital providers, and their opinion on the proposed model was collected. This research
methodology will be discussed further in the next section.
Shariah Analysis on Mudharabah-based crowdfunding
Syariyah Review Bureau (2020) reported that the ECF model is like raising capital through issuing shares.
Therefore, the Shariah issue on ECF is related to compliance or non-compliance with Shariah principles. In
addition, any ECF must satisfy the Shariah screening criteria, such as sector and financial screening. Thus, the
SMEs must meet the requirements to be considered Shariah-compliant. SAC-SC Malaysia has a screening
methodology that must be complied with by all publicly listed companies that want to be considered Shariah
compliant. Two-tier quantitative approaches are adopted: business activity and financial ratio benchmarks (SC,
2022).
From the proposed model by Muhammad Shahrul Ifwat et al. (2021), it is understood that the model used
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
Page 8455
www.rsisinternational.org
Mudharabah and Wakalah bi al-ujrah contracts. The Mudharabah is the essential contract connecting rabb al-
mal and mudharib. At the same time, Wakalah bi al-ujrah is used as a supporting contract to clarify the role of
the online platform. One of the Shariah issues in the Mudharabah contract is accepting capital from unlawful
sources. Undeniable, Mudharabah-based crowdfunding may attract various capital providers. Thus, there is a
possibility that Rabb al-Mal uses funds from unlawful sources, such as income received from conventional
financial products or illegal or non-halal businesses. Therefore, the issue of permissibility will arise. According
to BNM Shariah Resolution in the 58th meeting held on 27th April 2006, the Islamic banking institutions may
accept any placement of deposit or investment funds from individual or corporate customers without the need to
investigate the status of the sources of the fund, either shariah-compliant, non-shariah-compliant, or a mixture
between the two. Since Mudharabah-based crowdfunding was proposed as an alternative financing product for
SMEs, this issue may arise, too.
Based on BNM, Wakalah bi al-ujrah is a fee-based agency whereby the agent may charge a specific fee for the
services provided to the principal. As cited by Muhammad Shahrul Ifwat et al. (2021) from Al-Qarahdahi (2011),
the Wakalah fee must be clear, transparent, and mutually agreed upon by the contracting parties. For the paid
agency, the fee becomes binding once the agent performs their act (ISRA, 2016), thus making it similar to the
employment contract. Concerning the proposed model, the online platform provider will impose fees on the
mudharib and rabb al-mal. On behalf of Mudharib, the online platform will provide services such as launching
the campaign, facilitating funds transfer, and promoting the business. According to Rabb al-Mal, the online
platform will ensure the invested business is transparent, reliable, and marketable to protect the investments.
The listed services provided to the mudharib and rabb al-mal could lead to a dual agency issue. According to the
BNM Shariah Resolution on wakalah, if there is a dual agency, clear documentation is required and must be
agreed upon by the contracting parties. In addition, the principals must agree to the appointment of the agent to
act on their respective behalf. Thus, dual agency is permissible.
Another issue that can arise is the combination of two contracts in one agreement. Muhammad Burhan (2007)
stated that as long as the combined contracts pass the legal test by legal principles, the combined contracts can
proceed to the next stage. According to him, any transactions that could coexist with well-established Islamic law
principles and serve a valid purpose by lifting hardship from people are considered permissible. The combination
of Mudharabah and Wakalah bi al-ujrah is permissible in this case.
Behavioural Finance Theory (BFT) and Islamic Instruments.
It is not easy to find trading strategies that reliably make money (Ritter, 2003). The difficulty is that there are
many factors that investors must consider, such as whether the market is efficient or not and whether investors
are rational or normal. According to Ritter (2003), behavioural finance relates to traditional assumptions of
expected utility maximisation with rational investors in an efficient market. However, investors will make the
wrong decisions due to cognitive psychology and the limits to arbitrage when the market is inefficient. Earlier
than Ritter (2003), Barberis and Thaler (2002) found that the models captured something about investors' beliefs,
preferences, and limits of arbitrage in investment decision-making. Thus, both studies argued that behavioural
finance has two building blocks: cognitive biases and the limit of arbitrage.
Hirshleifer (2015) found that there is a need for more testing of the effects of feelings on financial decisions and
aggregate outcomes, especially for social finance. Social finance offers equally fundamental insight and is a
worthy descendant of behavioural finance. On top of that, Statman (2019) mentioned that the second generation
of behavioural finance could guide individuals to know what they want. It guides individuals to balance their
wants with correct cognitive and emotional errors when satisfying their wants.
RESEARCH METHODOLOGY
This study applies a qualitative method whereby the data are obtained from semi-structured interviews.
DeJonckhree and Vaughn (2019) stated that a semi-structured interview is an effective method for data collection
when the researcher wants to collect qualitative, open-ended data and explore the participants' thoughts, feelings,
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
Page 8456
www.rsisinternational.org
and beliefs about a particular topic. Since the purpose of this study is to assess the views of potential investors
towards Mudharabah-based crowdfunding, it is suitable for use. In short, this method enables the researcher to
understand the subject matter's issue deeply.
Another important element in research methodology is the sampling technique. Ilker, Sulaiman, and Rukayya
(2016) stated that a suitable sampling technique is nonprobability sampling when the researcher has limited
resources, time, and workforce. This sampling can be divided into convenience sampling and purposive sampling.
The present study applies convenience sampling. This sampling technique refers to where the target population
members meet specific criteria, such as easy accessibility, geographical proximity, and the willingness to
participate in the study.
However, to reduce the limitations of convenience sampling, such as biases and lack of generalizability, the
selected interviewees were chosen from different levels of educational backgrounds, occupations, ages, and
locations of stay. Furthermore, even though all interviewees consented to disclose their names and organisations,
this study prefers to safeguard their information, as this represents their personal views, not their organisations.
Generally, all the respondents understand ECF basics and the Mudharabah contract.
The interview sessions were conducted using Zoom meetings and were recorded for reference. Each session took
about 30 minutes, and interviewees were asked four questions, and their answers were handwritten in the book.
Later, the information was transcribed and analysed using content analysis methods. The content analysis aims
to organise and elicit meaning from the data collected and draw conclusions (Bengtsson, 2015). The information
was coded and themed into meaningful categories. To ensure the data is valid and reliable, all facts mentioned
by interviewees were confirmed to avoid accidental errors. All interviewees are listed as follows (Table 1).
Table 1: List of Interviewees
Respondents
Age
Level of educational background
Occupation
IV 1
37
PhD
Academician
IV 2
48
PhD
Academician
IV 3
37
Master
Academician
IV 4
33
Master
Academician
IV 5
43
Master
Business Owner
IV 6
29
Master
Student
IV 7
37
Degree
Medical Officer
IV 8
36
Degree
Assistant Manager
IV 9
36
Degree
Executive
FINDINGS AND DISCUSSIONS
Theme 1: The possibility of Mudharabah-based crowdfunding being implemented in Malaysia.
Sub-theme 1: Mudharabah-based crowdfunding is not possible to be implemented in Malaysia.
Among the nine respondents, two interviewees (IV 1 and IV 6) believe that Mudharabah-based crowdfunding is
impossible to implement. IV 1 argued that she is not confident in the business owner or Mudharib. According to
her, the business owner may not be honest in doing the business, and the rabb al-mal has no access to the business
operation due to Mudharabah contract conditions. Competition from other types of investments could also slow
the acceptance of this alternative investment opportunity. For example, investment in Islamic mutual funds offers
a stable return to investors. Meanwhile, IV 9 doubted whether there is a demand for Mudharabah-based
crowdfunding since capital providers imposed greater risk. Both respondents mentioned that using the online
platform to facilitate the transactions would not cause a problem implementing the crowdfunding, except for
using the Mudharabah contract.
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
Page 8457
www.rsisinternational.org
Sub-theme 2: Mudharabah-based crowdfunding can be implemented; however, it needs to meet certain
conditions.
Most respondents (IV 3, IV 4, IV 5, IV 7, and IV 8) believed that Mudharabah-based crowdfunding could be
realised in Malaysia. There are expected benefits from having Mudharabah-based crowdfunding in the modern
financial system, such as an alternative source of capital for SMEs and promoting wealth circulation among the
public (Muhammad et al. Rahman, 2021). However, the respondents provided several conditions to ensure the
success of the transactions. For example, both parties (business owners and capital providers) must understand
the concept of Mudharabah and agree with the contract's terms and conditions, establish proper monitoring and
administration from the regulators, and implement appropriate mitigation methods to reduce the risk.
Sub-theme 3: Mudharabah-based crowdfunding is possible to implement without any conditions.
Knowing Malaysia is a country at peace and the people are helping each other, IV 9 believed that Mudharabh
crowdfunding could be implemented in Malaysia. Many capital providers would willingly assist SMEs in raising
capital for their businesses. The respondent is aware of the risk of the Mudharabah contract and can absorb the
risk by converting the intention from doing a partnership to donating. Even though the study does not focus on
Mudharabah-based crowdfunding per se, Dzuljastri et al. (2021) found that the concepts of Islamic ECF, justice,
and fairness significantly influenced the respondents' acceptance of Islamic crowdfunding. The concept refers to
the methods employed, such as profit-sharing, halal investment, and avoidance of riba. On the other hand, justice
and fairness cover elements such as being reasonable, serving society, and equal distribution of wealth.
Sub-theme 4: Mixed opinion of the implementation of Mudharabah-based crowdfunding.
Interestingly, IV 2 has mixed opinions on the issue. She believed that there was a chance for Mudharabah-based
crowdfunding to be established in Malaysia. It is due to considering the needs of SMEs, showing infrastructure
like reliable online platforms, and innovation in Islamic financial products. However, simultaneously, she claimed
that the Mudharabah type of financial product is not as popular as Murabahah and Musharakah. Therefore, it is
impossible to have Mudharabah-based crowdfunding in the near future.
Theme 2: Possible challenges faced in Mudharabah-based Crowdfunding
Sub-theme 1: Lack of regulations for Mudharabah-based crowdfunding.
Most respondents (IV 1, IV 5, and IV 6) commented that the lack of regulation for Mudharabah-based
crowdfunding is the biggest challenge for capital providers or rabb al-mal to invest their money in the business.
Malaysia's Securities Commission (SC) has introduced guidelines to facilitate the ECF, which came into effect
on 10
th
February 2015 (SC, 2022). The new guideline is for registering the ECF platform and provides governance
arrangements for the platform's operators. However, the regulators in Malaysia have yet to impose specific
regulations on Mudharabah-based crowdfunding (Muhammad et al. Rahman, 2021). IV 5 commented that capital
providers would face double risks as Mudharabah contract conditions and no regulations if no rules had been set,
regardless of whether Islamic crowdfunding or non-Islamic (Abdulmajeed et al., 2021). Lack of regulation is one
of the problems identified in crowdfunding.
Sub-theme 2: Uncertainty of business performance in the current economic condition.
IV 2 and IV 3 mentioned that challenges in Mudharabah-based crowdfunding are more related to business
uncertainty. As a capital provider, return on investment would be one of the essential criteria for selecting
investment opportunities (Kallapur & Trombley, 2001). Therefore, both respondents believed the invested
business might not perform at its best due to the current economic conditions. Furthermore, as COVID-19
attacked the economies of countries globally, it seemed that it would be difficult for new businesses to sustain.
Thus, capital providers will lose the invested capital and must bear it wholly since the funding is based on the
Mudharabah contract.
Besides, IV 4, IV 8, and IV 9 believed that the success of the businesses depends on the type of business, i.e.,
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
Page 8458
www.rsisinternational.org
food and beverage or technology company, which is less risky than the real property sector. Furthermore, IV 4
added that if she wants to invest in Mudharabah-based crowdfunding, she will consider how the business owners
prepared a plan to reduce the risks faced by the business. Capital providers may be reluctant to invest without
proper planning, especially using the Mudharabah contract, since rabb al-mal needs to bear all the losses. IV 8
also mentioned that the online platform might not be reliable, and the fraudsters can take advantage by getting
easy money from ECF.
Apart from business risks and economic risks, as discussed above, respondents (IV 7 and IV 9) stated that the
risk in the Mudharabah contract would hinder them from trading in Mudharabah-based crowdfunding. Moreover,
even though both parties agreed on Mudharabah conditions, they were still required to cover 100% of the losses.
Theme 3: Mitigation solutions to challenges faced by the capital providers.
Sub-theme 1: The need for a regulatory framework for Mudharabah-based crowdfunding.
Most respondents believed that the issue of reliability and higher risk in investing using Mudharabah-based
crowdfunding could be reduced by having a proper regulatory framework. In Malaysia, BNM and SAC-SC are
responsible for issuing guidelines and resolutions for Islamic finance matters. Thus, they must be considered to
issue new and specific rules and regulations for Mudharabah-based crowdfunding. As stated by respondents, the
expected benefits of the regulatory framework are ensuring the business's governance, boosting the investors'
confidence, and promoting better business performance. On top of that, IV 2 mentioned that the government
authority bodies could also play some roles to ensure a specific performance, such as providing an
entrepreneurship module for the mudharib to join and prepare himself with equipped knowledge. Interestingly,
IV 5 and IV 8 suggested regular feedback from the mudharib to rabb al-mal will ensure the business owner is on
track. Therefore, the risk of uncertainty and unreliability can be mitigated.
Sub-theme 2: Practice of due diligence by the mudharib and rabb al-mal.
According to IV 3, the challenges for investment in Mudharabah-based crowdfunding can be reduced if both
parties exercise due diligence. For example, the mudharib must prepare a good business proposal covering
expected and unexpected outcomes. FindLaw (2016) mentioned that a business plan is a foundation for the
success of a business. Preparing the business plan requires the business owner to do market research to determine
the profitable type of business, estimated start-up costs, and other relevant information. In addition, IV 4
mentioned that when the business owner chooses the right products to be produced or sold, it can attract buyers
to buy the products, and the income for the business will increase. Capital providers may do market research too,
but they should focus on different perspectives, such as expected returns from the proposed business.
IV 7 and IV 8 suggested that business owners may have a backup plan if the business is not running as expected.
This backup plan should be presented during the business campaign. The suggestion is good for the business and
can increase confidence among the capital providers. Both respondents believed this backup plan is essential,
especially for Mudharabah-based crowdfunding.
Sub-theme 3: Prefer to have restricted mudharabah.
Muhammad Shahrul Ifwat and Md Habibur Rahman (2021) stated that some aspects of mudharabah practice
should be enhanced. It refers to the use of restricted mudharabah in Mudharabah-based crowdfunding. This
contract allows the Rabb al-Mal to impose restrictions with specific prerequisites for Mudharib. The restrictions
include the location of the business, manner, and type of investment (ISRA 2016). Noraina (2016) stated that
breaching these conditions means the mudharib is held accountable if the project is unsuccessful.
Theme 4: Behaviour of respondents towards Mudharabah-based crowdfunding
Statman (2014) stated that behavioural finance is finance with normal people. It assumes that normal people are
more intelligent, but sometimes can get swayed by cognitive errors such as overconfidence and misleading
emotions. The misleading emotions can be referred to as exaggerated fear or unrealistic hope. The same concept
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
Page 8459
www.rsisinternational.org
can be examined in Mudharabah-based crowdfunding. The respondents were asked one open-ended question:
"What factors will you consider for investment decision in Mudharabah-based crowdfunding?". The responses
from respondents were filled under the characteristic of normal investors: investment decisions based on acquired
knowledge, emotional benefits, expressive, and maximising utilitarianism. For example, IV 3 mentioned that he
is willing to explore Mudharabah-based crowdfunding as he perceived benefits as a capital provider from the
investment opportunities. In addition, IV 6 stated that she is concerned about the financial return and other types
of returns, such as whether the invested business's activities violate the environment.
A normal investor should not separate their roles as investors and consumers. A response was observed from IV
2, where she stated that she would look at the invested business's objectives before proceeding with the investment
decision. IV 1 and IV 9 believed that Mudharabah-based crowdfunding could help SMEs start their business.
The emotions of helping the person in need are greater than other factors. Based on the responses, cognitive
biases, emotions, and heuristic factors influence financial decision-making. Arran (2023) mentioned that
cognitive biases, which refer to systematic patterns of deviation from norm or rationality in judgment, will
significantly impact investors' financial decisions. While heuristics or simplified thinking can lead to sound
decisions, they can also lead to otherwise.
LIMITATIONS AND RECOMMENDATIONS
One limitation was identified in the present study. It is the number of respondents used in the study. Nine
respondents may not be able to represent the whole population in Malaysia. Nevertheless, this study could be
considered valid since the respondents were selected based on different occupations, geographical locations,
education, and age. Feedback from respondents must be obtained to ensure that Mudharabah-based crowdfunding
becomes a reality. Future researchers may consider extending this study by adding many respondents. Hence, the
semi-structured interview method may not be realisable since it is time-consuming and expensive. It is
recommended that future researchers apply quantitative methods, such as questionnaires, when involving many
respondents.
CONCLUSION
This study provides critical insights by assessing the expectations and identifying the challenges of potential
capital providers (rabb al-mal) regarding Mudharabah-based crowdfunding in Malaysia. The findings explicitly
demonstrate a strong willingness among investors to participate in the Mudharabah-based crowdfunding,
depending upon the establishment of a robust regulatory framework. This indicates that the inherent risks
associated with the Mudharabah profit-sharing contract—specifically the higher risk of capital loss—do not
present a barrier, provided there is mutual, informed consent between the mudharib (entrepreneur) and the capital
provider.
The results carry significant practical implications for the development of Islamic finance. First, the finding that
the lack of specific regulation is the primary hindrance is a clear mandate for the regulators. Prioritizing the design
and implementation of clear, Shariah-compliant Mudharabah-based crowdfunding rules will immediately unlock
a new pool of capital, transforming Mudharabah-based crowdfunding from a concept into a market reality.
Second, operationalizing Mudharabah-based crowdfunding provides a promising, much-needed alternative
source of funding for Small and Medium Enterprises (SMEs), especially those seeking ethical, interest-free
capital. This directly supports economic growth and promotes the Shariah objectives (Maqasid al-Shariah) related
to wealth circulation and brotherhood (ta'awun) in the financial ecosystem. Lastly, the analysis, informed by
BFT, categorized the respondents as rational or normal investors who possess investment knowledge. However,
the study serves as a crucial caution: regulatory bodies and platform operators must implement investor education
initiatives that specifically address cognitive biases and heuristics. This is essential to help even 'smart' investors
avoid common errors (e.g., overconfidence or herd mentality) and ensure long-term market stability and investor
protection.
In summary, Mudharabah-based crowdfunding holds substantial promise for advancing the Islamic capital
market. By directly addressing the regulatory and behavioural challenges identified, stakeholders can effectively
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
Page 8460
www.rsisinternational.org
harness investor confidence, thereby establishing an ethical and sustainable funding mechanism for the broader
economy.
REFERENCES
1. Abdulmajeed M. R. A., Sri Maulida, Abdullateef, A. M. (2021). Prospects and Challenges of
Crowdfunding as an Alternative Funding Option in Nigeria. Muqtasid 12 (1), 2021:17-31;
http://muqtasid.iainsalatiga.ac.id DOI:http://dx.doi.org/10.18326/muqtasid.v12i1.17-31
2. Academy for International Modern Studies (n.d.) Academy for (iefpedia.com)
3. Aishath, M., Nur Aishah, A., and Asma’ T. A. (2018). The application of blockchain technology in
crowdfunding: Towards financial inclusion via technology, International Journal of Management and
Applied Research, Vol. 5 No. 2, pp. 82-98, doi: 10.18646/2056.52.18-007.
4. Arran. R(2023). Behavioral finance: The psychology behind financial decision-making. Business Studies
Journal, 15(5), 1-2.
5. Barberis, N., & Thaler, R. (2003). A survey of behavioural finance. Handbook of the Economics of
Finance, 1, 1053-1128.
6. Bengtsson, M. (2016). How to plan and perform a qualitative study using content analysis, NursingPlus
Open, Volume 2, Pages 8-14, ISSN 2352-9008, https://doi.org/10.1016/j.npls.2016.01.001.
7. Business News Daily (2021). What You Need to Know About Equity Crowdfunding -
businessnewsdaily.com
8. Capitalmarketmalaysia.com (2022). Equity Crowdfunding Malaysia (ECF)|
(capitalmarketsmalaysia.com)
9. DeJonckheere, M. & Vaughn L. M. (2019). Semistructured interviewing in primary care research: a
balance of relationship and rigour, Fam Med Com Health, 7:e000057. doi:10.1136/ fmch-2018-000057.
10. Dzuljastri, A. R., Syamsu, R. Z., and Qosdan, D. (2021). Customers' Perception on Islamic Crowdfunding
as A Possible Financial Solution For The Pandemic Covid 19 Crisis in Malaysia. Journal of Islamic
Finance, 10, 092-100.
11. European Commission (2022). Equity crowdfunding (europa.eu)
12. Farah Adlina, A. J., Nur Syahirah, M. N., and Muhammad Shahrul Ifwat, I. (2022). Mudarabah-Based
Crowdfunding Model As An Alternative Fund For Empowering Single Mother Entrepreneurs. Al-
Qanatir: International Journal of Islamic Studies, Vol. 25. No. 2.
13. FindLaw (2016). Before You Start, Write a Business Plan - FindLaw. last updated June 20, 2016
14. Forbes (2019). Startup Financing: 5 Key Funding Options For Your Company (forbes.com)
15. Hirshleifer, D. (2015). Behavioral finance. Annual Review of Financial Economics, 7, 133-159.
16. Ilker, E., Sulaiman Abubakar, M., and Rukayya, S. A. (2016). Comparison of Convenience Sampling and
Purposive Sampling, American Journal of Theoretical and Applied Statistics, Vol. 5, No. 1, pp. 1-4. doi:
10.11648/j.ajtas.20160501.11.
17. ISRA (2016), 2
nd
Edition Islamic Financial System: Principles and Operations, ISRA, Kuala Lumpur.
18. Kallapur, S., & Trombley, M. A. (2001). The investment opportunity set: determinants, consequences and
measurement. Managerial finance.
19. Khaliq, A., Rizal, M. N., and Aimadhuddin, A. K. (2021). Crowdfunding in the emerging markets.
In Doing Business in Emerging Markets (pp. 178-205). Routledge India.
20. Maryam Sakinah. M. F., Julienty, A. B., and Shuhymee, A. (2021). The Relevance of Conventional and
Islamic Crowdfunding as Financing Instruments for SMEs. Journal of Islamic Finance Vol.10 No.1, 59-
64, IIUM Institute of Islamic Banking and Finance, ISSN 2289-2117 (O) / 2289-2109 (P).
21. Maya Puspa, R., Mohamed Asmy, M. T. T., and Jarita, D. (2020). Developing a Sharīʿah-compliant
equity-based crowdfunding framework for entrepreneurship development in Malaysia, ISRA
International Journal of Islamic Finance, Vol. 12 No. 2, pp. 239-252, Emerald Publishing Limited, 0128-
1976, DOI 10.1108/IJIF-07-2018-0085.
22. Metelka, A. (2014). Crowdfunding - Start-ups' alternative funding source beyond banks, business angels,
and venture capitalists. Master's Thesis.
23. Mohammed Burhan Arbouna. The Combination of Contracts in Shariah: A Possible Mechanism for
Product Development in Islamic Banking and Finance Thunderbird International Business Review, Vol.
49(3) 341–369 • May–June 2007 Published online in Wiley InterScience (www.interscience.wiley.com).
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
Page 8461
www.rsisinternational.org
24. Muhammad Shahrul Ifwat, I. and Md Habibur, R. (2021). Equity-based Islamic crowdfunding in
Malaysia: a potential application for mudharabah. Qualitative Research in Financial Markets, Vol. 13 No.
2, pp. 183-198
25. Muhammad Shahrul Ifwat, I., Muhammad Huzaifah, K., and Abdulmajeed, M. R. A. (2021). Mudharabah
based crowdfunding as an alternative source of funding book publications in Malaysia. Journal of Islamic
Marketing, © Emerald Publishing Limited, 1759-0833. DOI 10.1108/JIMA-05-2020-0147
26. Noraina, M. (2016). "An evolution of mudarabah contract: a viewpoint from classical and contemporary
Islamic scholars", Procedia Economics and Finance, Vol. 35, pp. 349–358, available at:
https://doi.org/10.1016/S2212-5671(16)00043-5
27. Noraina, M. S. Mohammad Rahmdzey R. (2019), "Problem of agency in mudarabah contract", Global
Journal Al-Thaqafah, Vol. 9 No. 2, pp. 57-68.
28. OECD (2015). New Approaches to SME and Entrepreneurship Financing: Broadening the Range of
Instruments. https://www.oecd.org/cfe/smes/New-Approaches-SME-full-report.pdf
29. Ritter, J. R. (2003). Behavioral Finance. Pacific-Basin Finance Journal, 11(4), 429-437.
30. Salizatul Aizah, I., Siti Nurhidayah, R., Salleh, N.M., Theam, T.S. and Lai, K.Y. (2018). Islamic micro
financing: Crowdfunding as a drive to improve financial inclusion in Malaysia. International Journal of
Engineering and Technology (UAE). 7. 18-20
31. Securities Commision Malaysia (2022). SC releases new Guidelines to facilitate equity crowdfunding -
Media Releases | Securities Commission Malaysia
32. Securities Commision Malaysia (2022). Shariah-Compliant Securities Screening Methodology - Shariah-
Compliant Securities | Securities Commission Malaysia
33. Serendenko, A. (2021). Overview of crowdfunding in Malaysia. Overview of Crowdfunding in Malaysia
| LenderKit
34. Statman, M. (2008). What is behavioral finance. Handbook of finance, 2(9), 79–84.
35. Statman, M. (2014). Behavioral finance: Finance with normal people. Borsa Istanbul Review, 14(2), 65-
73.
36. Statman, M. (2019). A second generation behavioral finance. In Behavioral Finance: The Coming Of
Age (pp. 3–21).
37. Syahida, A. and Umar, A. O. (2017). Towards a sharī‘ah compliant equity-based crowdfunding for the
halal industry in Malaysia. International Journal of Business and Society, Vol. 18 S1, 2017, 223-240
38. Syariyah Review Bureau (2020). The-new-buzz-in-alternative-funding.pdf (shariyah.net)
39. Wilson, K. E., & Testoni, M. (2014). Improving the role of equity crowdfunding in Europe's capital
markets. Bruegel Policy Contribution.