The Muamalat Newsletter Vol.1 2023

45 FEM Newsletter | June 2023 Introduction For years, the government of Malaysia strived to encourage Small and Medium Enterprise (SMEs), considering the ability of this sector could help boost the nation’s economic status. According to the Economic Census 2021, there were 1,226,494 SMEs in the country, representing 97.4% of all business establishments. SMEs contributed 37.4% of the national GDP and 42.2% of the employment (7.6 million workers). From 2016 to 2022, the growth rate of the SMEs sector was 5.8%, slightly decreasing from the previous period with a 0.9% decline (Department of Statistics Malaysia, 2022). Throughout the years, SMEs employed established ways of borrowing from financial institutions such as banks or other funds channels from the government through supporting agencies. However, this method of acquiring funds seems a huge setback for SMEs to acquire initial capital on the grounds of inexperience in new or unstable industry sectors, businesses being relatively young, bad management experience, and insufficient sales and cash flow (Choo & Madden, 2017). Meanwhile, the SME Masterplan 2012-2020 aims to raise the contribution of SMEs to 41% of the national GDP, 62% of national employment, and 25% of national exports by 2020. After eight years of implementation, some challenges have emerged, failing to achieve the target by 2020 (SME Corp, 2020). Therefore, crowdfunding has excellent potential to act as alternative financing to fill the financing gap of RM21.8 billion. In other developed countries, such as the UK, investment- based crowdfunding platforms have become one of the first options for many start-ups looking to raise funds (Hornuf et al., 2018). By using the web, they cut out the intermediary and can offer better transparency (Chishti, 2016). In response to the increasing demand for better financial services, FinTech has continued providing cost-effective platforms as an alternative to traditional banking. Crowdfunding 101 Crowdfunding is an emerging industry that resulted from the acceleration of the Internet and Web 2.0. Derived from traditional fundraising, crowdfunding is the interconnection of people worldwide who share a similar interest in a project and work to realize it by collecting funds. Although crowdfunding is not recent, using designated online platforms to obtain funds is relatively new (Kuppuswamy & Bayus, 2018). These platforms use the Internet tool to facilitate contact between investors interested in the projects and users of funds, organizing campaigns that decrease the costs of obtaining financing (Galuszka & Brzozowska, 2017). A crowdfunding platform operates as a two-sided market. This means an individual can be reasonably presumed to decide which side to take part Investment Based Crowdfunding: The New Era of Fundraising Authors: Dr. Nur Aqilah Hazirah Mohd Anim Faculty of Economics & Muamalat, USIM Prof. Dr. Nor Asiah Omar Fakulti Ekonomi & Pengurusan, UKM