Islamic Crowd-funding as The Next Financial Innovation in Islamic Finance: Potential and Anticipated Regulation in Indonesia

Crowd-funding is an innovative concept. The online nature and the usually small size of investments of crowd-funding makes it different from private placement or other similar activities. Crowd-funding is still infant industry but growing fast, including Islamic crowd-funding. Islamic crowd-funding is the platform designed to comply with the sharia. Considering as the most populous Muslim in the world, the third largest democracy, and the biggest Muslim nation in the world, with favorable demographics and transition to a middle-income country, Indonesia will mean eventually become the biggest market for Islamic finance. Hence, the coming era of Islamic crowd-funding in Indonesia is also underway. However, there is still lack of awareness and understanding about Islamic crowd-funding including its prospects and challenges. There is also no specific regulation on Islamic crowd-funding yet. In near future, regulation must also be put in place for crowd-funding. Regulator needs to create frameworks that provide sufficient structure and protections while allowing enough space for an orderly and robust market to grow. It is incumbent on Indonesia to ensure the groundwork in its place. Otoritas Jasa Keuangan (OJK) has shown resolve and determination to ensure the requisite infrastructure and regulations needed. Sharia and crowd-funding have similar goal and philosophical foundation. Our paper suggests that crowd-funding and Islamic finance are inherently compatible and mutually reinforcing. Islamic crowd-funding may also help Islamic finance to play more important roles with more significant market share in the Indonesian economy. Our paper also describes possible anticipated regulations for crowd-funding in Indonesia

Financial Technology and Poverty Alleviation in Indonesia During the COVID-19 : Impact Evaluation Analysis

The COVID-19 pandemic has brought significant changes, especially to each country's economic and financial sectors. Economic growth in Indonesia experienced a contraction entering mid-2021. This also impacted limiting economic activity, decreasing household consumption, unemployment risk, and increased poverty. In addition, there are changes in people's behavior, such as digital financing systems, non-cash payment systems, and online buying and selling transaction systems. Efforts to improve the economy are encouraged by stimulating people's economic productivity through adaptation to digital technology developments, especially using digital finance. However, the development of digital finance needs to be supported by public financial literacy and inclusion so that it can positively alleviate poverty. This study aims to analyze the impact of financial technology lending on poverty in Indonesia during the COVID-19 pandemic using instrumental variable analysis (IV) for 2019-202. The results of the study show that fintech lending has a negative effect on the poverty rate. However, it is not significant when other variables are added. E-commerce and the use of credit cards have a negative and significant impact on the poverty rate in Indonesia. In maximizing the role of Fintech in Indonesia, support and cooperation from the government, financial institutions, and various relevant stakeholders are needed

Economic recommendation based on pareto efficient resource allocation

A fundamentally important role of the Web economy is Online Resource Allocation (ORA) from producers to consumers, such as product allocation in E-commerce, job allocation in freelancing platforms, and driver resource allocation in P2P riding services. Since users have the freedom to choose, such allocations are not provided in a forced manner, but usually in forms of personalized recommendation, where users have the right to refuse. Current recommendation approaches mostly provide allocations to match the preference of each individual user, instead of treating the Web application as a whole economic system where users therein are mutually correlated on the allocations. This lack of global view leads to Pareto inefficiency, i.e., we can actually improve the recommendations by bettering some users while not hurting the others, and it means that the system did not achieve its best possible allocation. This problem is especially severe when the total amount of each resource is limited, so that its allocation to one (set of) user means that other users are left out. In this paper, we propose Pareto Efficient Economic Recommendation (PEER) - that the system provides the best possible (i.e., Pareto optimal) recommendations, where no user can gain further benefits without hurting the others. To this end, we propose a Multi-Objective Optimization (MOO) framework to maximize the surplus of each user simultaneously, and provide recommendations based on the resulting Pareto optima. To benefit the many existing recommendation algorithms, we further propose a Pareto Improvement Process (PIP) to turn their recommendations into Pareto efficient ones. Experiments on real-world datasets verify that PIP improves existing algorithms on recommendation performance and consumer surplus, while the direct PEER approach gains the best performance on both aspects

FinTech, RegTech and the role of alternative lending: an analysis of the P2P platform LendingClub

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Marketplace Lending and Credit Unions: Where the Past and Future of Peer-to-Peer Finance Meet

Peer-to-peer (P2P) or marketplace lending has expanded rapidly since the 2008 global financial crisis. While the idea of pooling small amounts of money from several lenders is not new, advances in financial technology (fintech) have resulted in scalable, efficient, and global processes. Since Zopa (the world’s first P2P lending platform, launched in 2005), the lending has increasingly shifted away from individual lenders working collaboratively to assess loans, and now includes automated decision-making algorithms with institutional lenders such as hedge funds and banks. Consequently, marketplace lending threatens to disrupt many activities of the financial sector. Although the industry has experienced significant growth in the UK and the USA, it is only recently, in 2016, that some Canadian regulations implemented new crowdfunding rules; these include allowing retail lenders to invest up to $10,000 annually. Similar to chartered national banks, Canada’s sub-national credit unions might feel challenged by emerging fintech firms. As such, through the resource-based view (RBV) of strategic alliances, this thesis sought to answer the question, How are Canadian credit unions entering the marketplace lending industry? The study employed an exploratory, qualitative design where semistructured interviews were conducted with 17 participants from 12 credit unions (including one credit union central) of the Canadian Credit Union Association (CCUA), but outside of Quebec’s Desjardins system of caisses populaires. In these interviews, three areas of prominent credit union business are explored: the use of marketplace lending for small- and medium-sized enterprise (SME) financing; impact investing; and the use of marketplace lending in providing alternatives to payday loan products. The study’s findings revealed that out of the 12 credit union members from the sample, three have partnered with fintech firms, one is developing its own lending platform, and the majority are simply monitoring the evolution of marketplace lending in Canada. Regarding the latter, perceived risks and/or barriers include regulations, reputational risk, and difficulty attracting deposits. However, reported opportunities include using marketplace lending to enhance member retention and attraction, and lending to socially and environmentally motivated SMEs. This thesis contributes to the academic literature by providing evidence as to how Canadian credit unions are entering the marketplace lending industry. It details the reported barriers and/or risks and opportunities, and the motivating drivers to form strategic alliances with start-up fintech firms

DO FIELD PARTNERS ADD VALUE TO CROWDFUNDED MICROFINANCE? AN INDUSTRY APPROACH

The framework of this study is the ¯eld of crowdfunded micro¯nance that represents a way to scale up ¯nancial access, leveraging digital technology applications. A key element of this value chain is the ¯eld partner, represented by a local Micro¯nance Institution (MFI) that intermediates between the crowdfunding platform and the individual borrowers or group of borrowers. In this context, the main objective of this paper is to measure the ¯nancial and prosocial contributions of ¯eld partners through crowdfunded microloans. Methodologically, this prosocial impact is measured with an innovative approach, by using network theory to describe the supply and value chains that link crowdfunding investors to ¯eld partners and, consequently, to micro-borrowers. The main contribution of this study is the introduction of a global indicator able to quantify the increase of the social impact and the ¯nancial system of a country, coming from the presence of ESG-compliant crowdfunded microloans

Code for all: a case study in entrepreneurial finance - comparative analysis of financing options

While the many examples of start-up funding journeys offer a large basis for analysis, the scarcity of social impact ventures leaves many pending questions about funding these types of ventures. We review the history of a Portuguese start-up named “Code For All” by creating a case study. We draw conclusions on which typology of financing fits best with the social impact start-up, analyze how a venture capital firm would assess and value Code For All, and lastly determine a rationale of how such a venture could quantify their impact on society

A Hybrid Simulation Framework of Consumer-to-Consumer Ecommerce Space

In the past decade, ecommerce transformed the business models of many organizations. Information Technology leveled the playing field for new participants, who were capable of causing disruptive changes in every industry. Web 2.0 or Social Web further redefined ways users enlist for services. It is now easy to be influenced to make choices of services based on recommendations of friends and popularity amongst peers. This research proposes a simulation framework to investigate how actions of stakeholders at this level of complexity affect system performance as well as the dynamics that exist between different models using concepts from the fields of operations engineering, engineering management, and multi-model simulation. Viewing this complex model from a systems perspective calls for the integration of different levels of behaviors. Complex interactions exist among stakeholders, the environment and available technology. The presence of continuous and discrete behaviors coupled with stochastic and deterministic behaviors present challenges for using standalone simulation tools to simulate the business model. We propose a framework that takes into account dynamic system complexity and risk from a hybrid paradigm. The SCOR model is employed to map the business processes and it is implemented using agent based simulation and system dynamics. By combining system dynamics at the strategy level with agent based models of consumer behaviors, an accurate yet efficient representation of the business model that makes for sound basis of decision making can be achieved to maximize stakeholders\u27 utility

Essays on trust and online peer-to-peer markets

The internet has led to the rapid emergence of new organizational forms such as the sharing economy, crowdfunding and crowdlending and those based on the blockchain. Using a variety of methods, this dissertation empirically explores trust and legitimacy in these new markets as they relate to investor decision making