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rowdfunding as a mode of financing is inseparable from Indonesia’s political economy and history. The Dakota RI-001 Seulawah, the first Indonesian airplane, could best describe how crowd funding has had a significant impact on our efforts to defend our independence.

In the middle of a political and financial crisis in June 1948, founding president Sukarno went to Aceh to raise support and funds to combat the Dutch military. He met local leader Daud Beureueh and asked for his commitment to defend the country. Furthermore, Daud also helped Sukarno raise more than 20 kilograms of gold from Acehnese merchants and the people of Aceh, who gave him all their valuables, such as gold, cash, agricultural commodities and livestock.

According to some stories, residents even extracted their own gold teeth to join this movement. Later, Sukarno labeled Aceh as the source of capital for the struggle for independence and named the first Indonesian airplane Seulawah (mountain of gold). This plane was used to smuggle weapons to fight the Dutch, transport medicine and even as a diplomatic vehicle to gain recognition from regional neighbors as an independent country.

This story shows that crowdfunding is not a new term in our political system, but has been embedded in our socio-economic landscape for years. In this sense, crowdfunding represents the idea of a “moral economy,” in which economic activity is submerged into society and is determined by non-economic factors. Moreover, crowdfunding strengthens social cohesion by emphasizing kinship, a sense of community and reciprocity as opposed to the market economy that merely focuses on economic value regardless of the consequences.

Crowdfunding also emphasizes norms and sentiments that inspire individuals or institutions to conduct their rights and responsibilities in developing a moral economy based on sharing principles. It provides equal access even for the poor to consolidate their donations with others, and avoids worldly and short-term material benefits compared to the market economy.

In addition, crowdfunding also aligns with the spirit of patriotism. Defending independence was an altruistic motivation for the Acehnese, so it took them only two days to collect more than 20 kg of gold.

Crowdfunding was significantly important in the era of early independence, when we did not have big corporations to finance efforts to defend the nation. Hence, crowdfunding became a powerful method to channel resources from anyone with a sense of patriotism.

Yet even now, crowdfunding remains a pivotal mode of financing. Regardless of the massive development of banking, crowdfunding still raises the spirit of developmentalism, which may have been diluted by the banking system. The growth of the internet and communication technology has turned crowdfunding into a new type of financial technology that embodies social goals as it tackles specific needs in a community.

Recently, initiatives like Kitabisa.com has become a staggering example of how our community finds it easy to make a difference by helping the less fortunate using a crowdfunding platform. Interestingly, like Aceh’s story, more than 7,000 people have joined a movement to finance the development of the R80, an Indonesian-made airplane initiated by former president BJ Habibie.

In 2017, crowdfunding generated US$7.23 billion worldwide, with an expected annual growth rate of 27.3 percent. Due to the early stages of crowdfunding in Indonesia, the platform raised only $500,000 in 2017. Nonetheless, annual growth is expected to reach 17.9 percent, increasing the transaction value to $1 million in 2021. This reflects and supports the trend and interest toward fintech, and notably crowdfunding as an alternative financial model.

Is the fintech sector breaking down the conventional way of financing, or are we seeing a social and ethical disruption? For now, crowdfunding does not undermine the trillions of rupiah in investments traded by traditional investment funds. Nonetheless, after the global crisis of 2007-2008, the strategies to reach the United Nations’ Sustainable Development Goals have yet to counter the world’s inequalities.

Solving inequality should be expected from a financial industry based on sharia. Nonetheless, almost 80 percent of the Islamic financing sector is monopolized by the banking sector and copies the “unethical” conventional banking sector. Indeed, whereas the ultimate goals of sharia promote equity financing modes, international regulations such as Basel III require greater capital for banks willing to use such ethical modes of financing.

For instance, when a bank must hold four times its own equity than for a debt, at the same risk level, this bank will require four times the return. Such requirements are thus not sustainable and too expensive for the Islamic banking industry.

Therefore, on the supply side, there is a dire need to ensure that the goals of sharia are embedded within the Islamic banking and finance sector. This requires different non-banking business models that would disrupt the system.

On the demand side, millennials are more likely to place a higher emphasis on environmental, social and good governance principles when making their investments.

Such an innovative model could be enhanced by the fintech industry through social oriented platforms like crowdfunding. In addition, fintech may allow financial inclusion by lowering the cost of access to finance or using big data that can replace credit history. In this sense, fintech-based crowdfunding and peer-to-peer lending platforms could meet the needs of individuals and small and medium enterprises that do not qualify for financing from traditional financial institutions.

Crowdfunding could be extended to religious practices such as cash waqf (donation). Indeed, the limited breadth of this religious donation could be counterbalanced using new technologies and financial models. By doing so, a cash waqf fund would be able to attract many more contributors who are willing to invest ethically.

Indeed, such a fund enables an individual to split some shares of his investment into micro-finance institutions that will offer an interest-free loan to micro-businesses. No ribawi (usury-related loans) is contracted and the micro-entrepreneur will improve his credit history. Therefore, the ethical potential of crowdfunding makes sense when combined with principles of Islamic finance.
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Randi Swandaru is an information technology manager at The National Zakat Board (BAZNAS) and Louis Marion is in business development at homunity.com. Both are alumni of Durham University Business School.