Islamic crowdfunding (ICF) is a shariah-compliant form of crowdfunding, whereby individuals can finance projects or take up equity in ventures and firms utilizing, based on Islamic finance modes, and with activities and venues subject to Shariah-compliance screening. This implies that all projects and products being financed must be halal and permissible by Shari’ah. Under specific regulatory regimes, the halal status and screening process must be determined by a Shariah advisor, who is also responsible for ensuring that the contribution of funds for financing a project or product (or broadly a cause or mission) is free from any impermissible elements or shari’ah violations.

The main types of crowdfunding are charity crowdfunding, reward-based crowdfunding, peer-to-peer crowdfunding, and equity crowdfunding.

Charity crowdfunding is conducted through charitable campaigns, and the amount paid by participants (contributors) are donations (tabarru)- that is, contributors expect no worldly return. The shariah-compliant version of crowdfunding is modeled on zakat, sadaqah, waqf.

In reward-based crowdfunding, contributors expect reward from the campaign owner, either in the form of products (developed by the campaign) or non-products. The shari’ah-compliant version can be based on charity (sadaqah) and hibah; or in case of purchase of the products in advance, on modes like salam.

Equity crowdfunding involves investing the equity of a venture or business. Contributors expect to receive dividends or can liquidate their shares in other funding rounds that may take place in the future. The shari’ah-compliant version can based on a profit and loss sharing (musharaka) contract.

Peer-to-peer (P2P) crowdfunding is about extension of loans to small businesses or even individuals. Contributors have interest (share) in the business. Lending to individuals can be on the basis of qard hasan (interest free loans) or murabaha to purchase goods/ commodities, etc. For businesses, this type of crowdfunding can utilize contracts such as murabaha, salam, istisna or other types of sales (ba’i). It may also involve the use of mudaraba and profit and loss sharing (musharaka) contracts.