The Risk Mitigation to the Islamic Crowdfunding in Indonesia

Fiska Silvia Raden Roro

Islamic Law Lecturer at Faculty of Law Universitas Airlangga, Indonesia

Keywords: crowdfunding, financial, Islamic, risk mitigation, technology.

Abstract: Islamic crowdfunding which is one of the digital technology and information development on finance and

economics provide online financial services for contracting parties without them knowing each other. In the

Islamic crowdfunding system, the contracting parties may never meet in the real life or even they will stay

anonymous to each other. This situation shows that a cyber risk is one of the legal risks in Islamic

crowdfunding transaction. Other than legal protection and supervision through policy and comprehensive

regulatory framework from the authorized institution, risk mitigation is urgently needed to protect those who

are bound to Islamic crowdfunding transactions, especially legal protection for financer. In the end of May

2018, The Financial Services Authority/ Otoritas Jasa Keuangan returned 41 registration documents from the

candidate of financial technology companies (fintech) due to the consideration that they are unable to fulfill

the obligation to mitigate the risks. The concept of Islamic crowdfunding draws inspiration from microfinance

and crowdsourcing under sharia principle. Beside its benefits in terms of easy and practical side, Islamic

crowdfunding also has magnitude risk. This article will explain what are the risks that become obstacle to

Islamic crowdfunding and the legal solutions in order to conduct risk mitigation in Indonesia. Regarding to

the guidance (fatwa) of Dewan Syariah Nasional/National Sharia Board No. 117/DSN-MUI/II/2018, therefore

this paper is limited only to analyse Islamic crowdfunding as a platform of financial service based on

information technology under the sharia principles.

1 INTRODUCTION

In this digital era, the utilization of technology has

not only delivered to the characteristics of new

business transaction model, but also raised the

alternative system of new financial institutions.

Islamic crowdfunding is a hybrid business innovation

model that integrates the concept of business ethics of

Islamic finance institutions and crowdfunding as one

of fundraising innovation model of finance

technology. Islamic crowdfunding is expected to

become a solution for micro, small and medium

enterprises or start-up business instead of formal

financial intermediaries. As a new funding method,

crowdfunding can support various improvement for

profit, cultural, social ventures, and community

development. Through this article the author attempts

to promote Islamic crowdfunding as a new model of

innovation businesss.

The financial technology (hereinafter referred to

as fintech) company signs up to The Financial

Services Authority/Otoritas Jasa Keuangan

(hereinafter referred to as OJK) to comply with the

Regulation of The Financial Services

Authority/Peraturan Otoritas Jasa Keuangan

(hereinafter referred to as POJK) No. 77 of 2017 on

the Lending Service based on Information

Technology. PT Ammana Fintek Syariah is one of

fintech company that has officially registered and

licensed as the first fintech company based on sharia

principles in Indonesia. The OJK stated that until 10

June 2018, the number of fintech listed by them

consisted of 63 conventional fintech and 1 sharia

fintech (in the near future there will be four lending-

based financial technology companies-based that

runs the sharia principles in the process of filing a

registered permit). OJK, however, will return

registration documents from the candidate of

financial technology companies (fintech) due to

inability to fulfill the obligation to do risk mitigation.

Crowdfunding is one of the financial technology

services platform. There is no specific regulation on

Islamic crowdfunding in Indonesia, therefore there is

a lack of regulation regarding to the definition, term

and conditions, legal protection and supervision

which can cover risk mitigation regulations. In

February 2018, National Sharia Board/Dewan

Raden Roro, F.

The Risk Mitigation to the Islamic Crowdfunding in Indonesia.

DOI: 10.5220/0010052002370245

In Proceedings of the International Law Conference (iN-LAC 2018) - Law, Technology and the Imperative of Change in the 21st Century, pages 237-245

ISBN: 978-989-758-482-4

237

Syariah Nasional (hereinafter referred to as DSN-

MUI) has enacted guidance through Fatwa No.

117/DSN-MUI/II/2018 regarding Financial Service

based on Information Technology under Sharia

Principles (hereinafter referred to as Fatwa DSN-

MUI No.117/2018). This Fatwa DSN-MUI

No.117/2018 is only guidance, since the

characteristic of fatwa is non-binding as the law is

established. Financial services based on information

technology under sharia principles is the

implementation of financial services based on sharia

principles which bring together or connect financiers

with financing recipients in order to establish

financing contracts through electronic systems by

using the internet. Meanwhile based on Article 1

point 3 of POJK No. 77 /POJK.01/2016, the lending

service based on information technology based is the

implementation of financial services to arrange a

meeting among lenders with the recipient of the loan

in order to construct a lending agreements in rupiah

currency directly through electronic systems by using

the internet. This platform is generally aimed to

support the development of microcredit or small and

medium enterprises (hereinafter referred to as SMEs)

in capital and investment. The method of the lending

service based on information technology is expected

to be a solution for SMEs and new start-up business.

Bryan A. Garner

stated that crowdfunding is a

collective fundraising effort that involves using the

internet to attract potential fund owners who have the

opportunity to support the goals of fundraisers. Adam

Ng refers to Ordanini defined crowdfunding as “a

collective effort by consumers who network and pool

their money together, usually via the internet, in order

to invest in and support efforts initiated by other

people or organizations”. From these definitions,

social capital in the form of trust, social network, and

norms are all important elements and outcomes of

crowdfunding.

According to the Adam Ng,

while

there are challenges confronting this new sector, there

are unique opportunities for the development of an

equity-based crowdfunding ecosystem that comprises

the funders-investors, crowdfunding portals, third-

party services, technology, entrepreneur,

development organizations, and the government.

Four key enablers of a robust crowdfunding investing

Bryan A. Garner, Black’s Law Dictionary, Tenth Edition,

Thomson Reuters, Texas,2014, p. 459.

A Adam Ng, Abbas Mirakhor, and Mansor H. Ibrahim,

Social Capital and Risk Sharing: An Islamic Finance

Paradigm, Palgrave Macmillan,New York, 2015, p. 117.

Ibid, p. 10.

ecosystem are (a) enabling policy and comprehensive

regulatory framework; (b) community engagement;

infrastructure.

As a comparison, England is one of the countries

giving specific definition of crowdfunding in one of

their laws. The FCA’s Regulatory Approach to

Crowdfunding Over The Internet, and The Promotion

of Non-Readily Realisable Securities by Other Media

Feedback to CP13/13 and Final Rules which is

contained in Policy Statement PS14/4, which

explains the definition of crowdfunding as following:

“Crowdfunding is a way in which people,

organisation and business (including business start-

ups) can raise money through online portals

(crowdfunding platforms) to finance or re-finance

their activities and enterprises. Some crowdfunding

activity is unregulated, some is regulated and some is

exempt from regulation”.

In relation to characteristic of crowdfunding,

Hermer

differentiated based on the background,

namely crowdfunding as an intermediate body, as a

business body (for profit/commercial) and as a non-

profit body (not to profit). Piotr Pazowski

divided

into four types of platform of crowdfunding as

following:

a. investment crowdfunding/equity-based

crowdfunding

b. lending-based crowdfunding

c. reward-based crowdfunding

d. donation-based crowdfunding.

Meanwhile, in the FCA official website, each

definition of crowdfunding platform is being

explained as following: (i). loan-based crowdfunding:

also known as peer to peer lending, here the customer

lending money as a reward of interest payment and

capital repayment from time to time; (ii). investment-

based crowdfunding: customer invest directly or

indirectly in a new business or settled business by

buying investment such as stock or debenture; (iii).

donation-based crowdfunding: persons who is giving

money to a company or organisation they support;

(iv). pre-payment or reward-based crowdfunding:

persons who is giving money as a reward over

appreciation, services or products (like a concert

ticket, innovative products computer games).

Joachim Hemer, A Snapshot on Crowdfunding, Fraunhofer

Institute for Systems and Innovation Research ISI,

Karlsruhe ,2011, p. 12.

Piotr Pazowski, “Economic Prospects And Conditions Of

Crowdfunding”, International Conference: Human Capital

without Borders: Knowledge and Learning for Quality

Life,Portoroz, Slovenia, 2014, p. 1081.

https://www.fca.org.uk.

iN-LAC 2018 - International Law Conference 2018

238

Undeniably, due to insufficient regulation related

to Islamic crowdfunding in Indonesia, some

financiers and SMEs are still unsure regarding to the

definition, regulation, risk and its mitigation, legal

protection, supervision of the Islamic crowdfunding

platform. This article will analyse the risk of Islamic

crowdfunding, its regulation and supervision in

Indonesia, and the effort of legal protection,

especially to mitigate the risks in Islamic

crowdfunding.

2 THE RISKS IN ISLAMIC

CROWDFUNDING

Parties in Islamic crowdfunding system portrays the

huge risk inherent to all parties especially cyber

related risks, in addition to that it also shows lack of

legal protection to the parties bound to the Islamic

crowdfunding transactions. Legal protection is

required to protect all parties especially the funds

giver. Following are several risks in Islamic

crowdfunding :

a. Cyber Risk

Cyber risk is a risk inherent in to any transaction

based on information technology or depends on

the internet. Islamic crowdfunding illustrates the

magnitude of the risks will be borne by the parties,

especially the risks related to cyber risk which it

is known very weak in legal protection and law

enforcement. Risk mitigation is one of the legal

protection which is very important to protect the

parties, especially the funders. To prevent and

overcome all the risks faced in Islamic

crowdfunding. Some legal components that can

be used as elements in the framework of legal

protection as preventive and repressive risk

mitigation efforts include regulatory sandbox, risk

management in Islamic crowdfunding, oversight

function by authorized institutions, as well as the

legal protection of the parties if there is a

discrepancy with the contract, it is necessary to

regulate liability, sanctions or compensation

(dhaman al aqd) and related sanctions.

b. Shariah/ Legal Compliance Risk

Lack of regulations and literation of Islamic

crowdfunding lead to the arise of sharia/ legal

compliance. The existence of a command for

muslim to comply with sharia as a binding legal

rule is recognized as the main duty of a muslim

R. Michael Feener,”Social Engineering Through Shari’a:

Islamic Law And State-Directed Da’wa In Contemporary

Aceh” , Indonesia law Review, Vol. 3,2013 , p. 308.

throughout the world. This is not constrained in its

application only if there is support by the social

and political system of law for the interests of

muslims in carrying out sharia compliance. If not,

then sharia will be faced with a larger and stronger

manipulation of legal, social, and political

interests. This is in line with Feener's statement

which states that:

Sharīa is particularly powerful for providing

such binding rules of conduct because it is, on one

level, a sufficiently abstract notion to appeal to

anyone who would consider him or herself

Muslim. At the same time, however, under this

broad assent to Sharī’a as an ideal, there are

immense spaces for the elaboration of very

specific positions on a wide range of social and

political—as well as more specifically religious—

issues. Such a situation allows the possibility for

great manipulation by certain powerful interests.

c. Financing Risks

The following are some credit or financing risks

that are likely to be faced by Islamic

crowdfunding funders when conducting

cooperation in financing:

1. Business Failure and Investment Losses.

Most of the budding business people have no

experience in running their business, lack of

knowledge and entrepreneurial skills in the

early stages end in business failure, but there

are also micro, small, and medium enterprises

(hereinafter referred to as MSME) business

actors or start-up businesses in the early stages

who succeed in giving multiple benefits to the

fund providers. This means that the funder is

more likely to have a loss than to get a profit.

2. Unspent Profits

If MSME businessmen or start-up businesses

at an early stage succeed in making a profit,

they will usually use the profit for their

business expansion and therefore there will be

a long lag before the business actor distributes

the profits to the funder.

3. Additional Capital

When a start-up business or MSME is

successful and growing, usually they will need

additional capital and therefore the business

actor will carry out an advanced capital search

campaign. As a result of the additional capital

obtained by the business, the proportion of

profit/profit sharing from the initial funder is

divided by the next fund provider.

The Risk Mitigation to the Islamic Crowdfunding in Indonesia

239

3 RISK SHARING IN ISLAMIC

CROWDFUNDING

TRANSACTIONS

The development of the Islamic crowdfunding

platforms and products may therefore more promote

risk sharing activities.

In Fatwa DSN-MUI No.

117/2018, there are several types of aqad and their

mechanisms of risk sharing which is related to the

Islamic financial technology transaction, namely:

a. Sale and Purchase Agreement, is a contract

between the seller and the buyer that results in the

transfer of ownership of the exchanged object

(goods and prices);

b. Ijarah contract, is a contract of transfer of

usufructuary rights on a certain item or service

within a certain time by payment of ujrah or

wages;

c. Musharakah contract: a cooperation contract

between two or more parties for a particular

business in which each party contributes venture

capital funds (ra's al-mal) provided that profits

are divided according to agreed ratio or

proportionally, while losses are borne by the

parties proportional;

d. Mudharabah agreement: a contract of cooperation

between a capital owner (shahibu al-maal) who

provides all capital with the manager ('amil /

mudharib) and business profits are divided among

them according to the ratio agreed in the contract,

while the loss is borne by the capital owner;

e. Qardh agreement: a loan agreement from the

lender with the provision that the loan recipient

must return the money he receives in accordance

with the agreed time and method;

f. Wakalah contract: a contract of delegation of

power from the power of attorney (muwakil) to the

recipient of the power of attorney (wakil) to

accomplish certain legal actions which may be

represented;

g. Wakalah bi al-ujrah: a wakalah contract which is

accompanied by a reward in the form of ujrah

(fee).

Furthermore, this fatwa stated several model of

information technology-based financing based on

sharia principles that can be performed by service

provider, which are:

Firstly, factoring financing; namely financing in

the form of service for collection of receivables based

on proof of invoice, either accompanied or without

A Adam Ng, Abbas Mirakhor, and Mansor H. Ibrahim,

Social Capital and Risk Sharing: An Islamic Finance

Paradigm, Palgrave Macmillan,New York, 2015, p. 120.

accompanied by bail (qardh) given to entrepreneur

who have a bill to a third party (payor).

Secondly, financing procurement of third party

ordered goods (purchase orders); namely financing

provided to entrepreneur who have obtained orders or

work orders for procurement of goods from third

parties.

Thirdly, financing the procurement of goods for

entrepreneur that sell online (online seller); namely

financing provided to entrepreneur who conduct

online buying and selling transactions at information

technology-based trading service providers (market

place/ e-commerce platform) who are already

working in partnership with the service provider

Fourthly, financing the procurement of goods for

entrepreneur who sell online with payment through

the provider of payment gateways; namely financing

provided to entrepreneur who are actively selling

online (seller) through their own distribution channels

and payments made through payment authorization

providers online (payment gateway) which

cooperates with the service provider.

Fifthly, funding for employees; namely financing

provided to employees who need consumptive

financing with a salary cut cooperation scheme

through the employer institution.

Sixthly, community-based financing, namely

financing provided to community members who need

financing, with the payment scheme being

coordinated through the community

coordinator/management.

Meanwhile, based on Article. No.1 verse (25) the

sharia law, the definition of funding the provision of

funding or bill which is considered to be similar to

that is in the form of:

1. Profit share transaction in the form of

mudharabah and musyarakah;

2. Renting transaction in a form of ijarah or ijarah

muntahiya bittamlik;

3. Trade transaction in a form of accounts

receivable murabahah, salam, istishan;

4. Lending transactions in a form of accounts

receivable qardh;

5. Service renting transaction in a form of ijarah;

6. Multi-service transaction.

This fatwa also contain provisions that are

prohibited in sharia financing service based on

information technology, including riba (an additional

given in the exchange of riba goods/ riba fadl or

additional that is agreed upon in the principal debt in

return for the suspension of payment in absolute

iN-LAC 2018 - International Law Conference 2018

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terms/riba nasi'ah); gharar (an uncertainty in a

contract, either regarding the quality or quantity of the

object of the contract or about its submission); maysir

(every contract that is carried out with unclear

objectives, and inaccurate calculation, speculation, or

profit); tadlis (the act of hiding the object's contract

disability done by the seller to trick the buyer as if the

object of the contract is not defective); and dharar (an

action that can cause harm or loss to another party).

From the explanation above it can be concluded

that Islamic crowdfunding or sharia crowdfunding or

sharia crowdfunding based on information

technology contain deflation as a crowdfunding

platform designed to fulfill sharia principle, which is

an effort to collect/raising funds collectively

(individual and/or organisation) in funding a project

of start-up business/ SMEs, giving financing both

personal or business, or other necessities over internet

platform which is in line with sharia principle. Islamic

crowdfunding implement sharia contracts between

giver, site organiser and receiver. In addition to that,

the object and aim of financing which is funded are

also things that have to comply with sharia principles

that must be excluding gambling, interest, gharar and

batil substance.

4 RISK MITIGATION IN ORDER

TO THE LEGAL PROTECTION

TO THE ISLAMIC

CROWDFUNDING

In order to the legal protection to the Islamic

crowdfunding may be preventive or repressive to the

parties who infringe the law, both need supervision

by the authorized body. In relation to preventive legal

protection, the legal protection that can be done are

regulatory sandbox and risk management. Regulatory

sandbox is a preventive legal protection form for the

implementation of a healthy fintech transaction, the

balance between innovation and risk management,

regulation that puts forward its protection to the

society and strengthening the coordination with the

related parties. Regulatory sandbox will contain

Fintech Bank Indonesia is a place for assesment, risk

mitigation, and an evaluation of business and

product/service model from fintech and also the research

initiator related to information technology based financing

servicing activity based on banking. The aim of the

establishment of fintech office are; first, facilitate the

innovation development in the ecosystem of technology

based finance in Indonesia, Second, prepare Indonesia to

optimising the technology development in an attempt of

digital transition procedures and will be applied in

order for the fintech performer to fulfill the criteria

determined by the Central Bank of Indonesia/Bank

Indonesia (hereinafter referred to as BI), which is to

gain opportunity to maturing the concept and

developing it in a healthy way, and in time it will be

able to provide secure financial services for the

society.

Regulatory sandbox issued by fintech office

which is aiming to give legal protection and risk

mitigation to fintech performer, including

crowdfunding. When an Islamic crowdfunding has

been registered declared to have official permission,

then this business has truly fulfilled the criteria and

has matured the concept, and it has an opportunity to

develop in a healthy way and in time is able to provide

secure financial services for the society. Through that

provision, BI is regulating and giving permission and

supervising the performance of fintech. Regulatory

sandbox is also implemented in England and

Singapore in order to protect the investor and the

spear head of financial sector development interest.

On the official website of Financial Conduct

Authority (hereinafter referred to as FCA) in

England, the objective of regulatory sandbox is

elaborated, which enable company to verify product,

services, business model and innovative presentation

mechanism in areal market with a real customer.

Meanwhile, up until now there has not been any

standard regulation in relation to regulatory sandbox.

The regulation applied in England and Singapore,

however, may at least describes how this policy

works. In relation to the sandbox, in Singapore it is

issued by Monetary Authority of Singapore

(hereinafter referred to as MAS) and become solution

to facilitate the innovator to experience and regulate

the government. The regulatory sandbox by MAS is

a first step in regulating fintech without strangling

innovation and enable to experiment. MAS will

loosen specific regulation requirements that may be

applied to the applicant. Sandbox provides protection

which is suitable to accommodate its consequence to

the customers due to the impact of failures which is

limited to a specific trial group. By managing

sandbox, they will be more able to understand and

economic development, third, increasing the

competitiveness of Indonesia technology based finance

industry. Fourth, absorbing the information and giving

feedback to support the BI policy formulation as a response

towards the development which is based on technology. To

achieve that main goal fintech office will operate in four

different function, which are a catalyst or facilitator,

businesses intelligence assessment and also co-ordination

and communication function.

The Risk Mitigation to the Islamic Crowdfunding in Indonesia

241

arrange specific fintech regulation for the future

economy.

Generally, registrant which has finally passed

the sandbox regulation test obliged to report regularly

to the authority. They, however, do not have to fulfill

all the regulation requirements immediately. In an

exam period, company may be taking benefit of the

flexibility and concession offered by “sandbox” to

gain experience and gain its strength if their

innovation is proven to succeed and the company is

able to comply with relevant constitution after

sandbox examination, product maybe used to the

wider scale of a government agreement. Some things

that need to be taken into consideration are eligibility

of applicants and consumer safeguard. Furthermore,

fintech supervising board given individual guide

about the interpretation of the regulation based on

case after case that may be encountered by the

business performer. Both the MAS and FCA are

holding specific standard that obliging the applicant

to formulate a strategy which is just and clear for the

customer when the examination finished according to

the regulation.

Other than risk mitigation as legal protection by

authorized institutions, the implementation of risk

mitigation is also an obligation to the candidate and

the registered company of Islamic crowdfunding.

Risk mitigation mechanism in sharia transaction is

enable to be implemented in Islamic crowdfunding.

Risk mitigation in Islamic crowdfunding is related to

the risk management, legal protection and

supervision.

Regarding to the risk management, risk

management functions as a filter or early warning

system for financial service activities, including the

need for risk management in Islamic crowdfunding.

Adiwarman Karim

said that the purposes of the the

risk management are (i). providing information about

risks to regulators, (ii). ensuring that banks do not

experience unacceptable losses, (iii). minimizing

losses from various risks that are uncontrolled, (iv).

measuring exposure and concentration risk, (v).

allocating capital and limiting risk.

Adiwarman Karim, as quoted by Trisadini

Prasastinah Usanti

, explained that there are

fundamental differences between Islamic banks and

conventional banks, the difference is in what is

measured (what to measure), not how to measure.

That the Islamic bank operational risk management

Adiwarman A Karim, Bank Islam: Analisis Fiqih dan

Keuangan, Raja Grafindo Persada, Jakarta, 2007, p. 256.

Trisadini Prasastinah Usanti, “Pengelolaan Risiko

Pembiayaan Di Bank Syariah, Adil : Jurnal Hukum” ,Vol.

3 No.2,2015, p. 422.

process includes risk identification, risk assessment,

risk anticipation and risk monitoring. Risk

management in Islamic banks has a different

character from conventional banks, mainly because of

the inherent types of risk that only exist in Islamic

banks. Even the risk management provisions for

Islamic banks may be applied in Islamic

crowdfunding risk management. Risk identification

carried out by Islamic banks does not only cover the

various risks that exist in financial institutions in

general, but also includes typical risks in Islamic

financial institutions. So that risk management in

Islamic bank can be implemented to Islamic

crowdfunding which are risk identification, risk

assessment, risk anticipation and risk monitoring.

In the operations of Islamic financial institutions

so far, namely the provisions regarding risk

management in Islamic banks, on the asset side,

investments can be made through profit-based

financing (mudarabah and musyarakah) and fixed

income financing models, such as murabahah

(selling buy by mark-up), buying and selling with

installments (murabahah / medium / long term),

istishna'/ greetings (submission of deferred sale and

purchase objects or advance payment) and ijarah

(leasing). Funds are only provided to finance business

activities in accordance with Islamic principles.

While on the liability side, third party funds can be

collected in the form of current accounts and

investment accounts. The first type of fund in Islamic

banks is qard hasan (interest-free loan) or amanah

(trust contract). The fund must be returned in full to

the depositor for the performance (demand deposit).

While investment depositors will receive

compensation based on the profit and loss sharing

(PLS) scheme and the fund shares in the bank's

operational risk. The application of the principle of

profit sharing to depositors is a unique characteristic

of Islamic banks. These characteristics together with

variations in financing models and compliance with

sharia principles, has changed the risk characteristics

faced by Islamic banks.

Khan Tariqullah dan Habib Ahmed, Manajemen Risiko

Lembaga Keuangan Syariah, Bumi Aksara, Jakarta, 2008,

p. 2-3.

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5 SUPERVISION BY

AUTHORIZED INSTITUTION

Regarding to the legal protection of the Islamic

crowdfunding system, it means that it discusses the

supervision by government to the Islamic

crowdfunding system itself. Supervision must be

carried out by the authorized institution so that there

is no overlapping in carrying out the supervisory

function. Regarding supervision in the field of

fintech, including oversight of crowdfunding, there is

still a lack of regulation so that the coordination

system between BI and the OJK has not been realized

because until now there are no legal instruments

governing the formal framework (both at the level of

general policy makers and at the technical level) in

order to support the supervisory task related to the

course of crowdfunding activities. The FCA strictly

stated on its official website that the regulated internet

business model activities only deal with loan-based

crowdfunding platforms (loan-based crowdfunding):

also known as 'peer-to-peer lending', and investment-

based crowdfunding (investment-based

crowdfunding) and FCA does not regulate donation-

based crowdfunding (donation-based crowdfunding)

and pre-payment or rewards-based crowdfunding.

The crowdfunding platform is differentiated on

the purpose of the activity. If Islamic crowdfunding is

intended to be built on an ijarah contract that aims to

carry out activities primarily related to financing

services, the financing services authority is the

institution authorized to monitor it. This has been

regulated in Article 6 of Act Number 21 of 2011

concerning the Financial Services Authority/OJK

(State Gazette of the Republic of Indonesia of 2011

Number 111, Supplement to the State Gazette of the

Republic of Indonesia Number 5253), that the OJK

carries out the task of regulating and supervising the

activities of financial services in the sector of

banking, financial services activities in the capital

market, and financial services activities in the

insurance, pension funds, financial institutions and

other financial services institutions. OJK has a role to

organize an integrated system of regulation and

supervision of all activities within the financial

services sector. OJK has authority in the field of

regulation and supervision. In the field of supervision,

OJK supervises and protects consumers in the

banking sector, capital market, and Non-Bank

Financial Industry/Industri Keuangan Non-Bank

https://www.fca.org.uk.

Rebekka Dosma Sinaga, “Sistem Koordinasi Antara Bank

Indonesia Dan Otoritas Jasa Keuangan Dalam Pengawasan

(hereinafter referred to as IKNB), provides and/or

revokes business licenses, approves or determines

dissolution, gives written orders to financial service

institutions and appoints site managers Islamic

crowdfunding web and authorized to set

administrative sanctions. In the task of bank

supervision there is coordination between BI and

OJK. BI exercises its authority in the field of

macroprudential, and OJK in the field of

microprudential.

Supervisory agencies will be different if Islamic

crowdfunding binds itself to a tabarru contract which

the main activity is donation based crowdfunding and

the position of the funder is a donor, not a capital

provider. If the funds raised in fundraising are

donation conducted through Islamic crowdfunding

platforms, it is very possible that the funds are

included in the category of zakat, infaq and sadaqah.

Related to the management of zakat regulated by the

Law of the Republic of Indonesia Number 23 of 2011

concerning Management of Zakat (State Gazette of

the Republic of Indonesia Number 115 in 2011,

Supplement to the State Gazette of the Republic of

Indonesia Number 5255) (hereinafter referred to as

the Zakat Management Law), the supervisory

function is on the National Zakat Board/ Badan Zakat

Nasional (hereinafter referred to as BAZNAS). In this

case, the government carries out regulatory control

duties, and BAZNAS as the executing agency. The

reason for the government to design BAZNAS as a

non-structural government institution whose

membership consists of elements of society and

government, is that the nature of its nature is not lost.

To assist BAZNAS in the implementation of

collecting, distributing and utilizing zakat, the

community is possible to create Amil zakat

agencies/Lembaga Amil Zakat (hereinafter referred

to as LAZ). Every LAZs must obtain permission

from the government. Zakat finance is not included in

the national budget of Indonesia balance sheet, but it

is reported in the document. The state has an interest

in facilitating muslims in fulfilling the obligation of

zakat, but not taking advantage of the people's funds.

It is firmly stipulated in Article 1 jo. Article 5 of the

Zakat Management Law, that BAZNAS is an

institution that carries out zakat management

nationally, domiciled in the capital city of the country

and is a non-structural government institution that is

independent and responsible to the President through

the Minister.

Bank Setelah Lahirnya Undang-Undang Nomor 21 Tahun

2011 Tentang Otoritas Jasa Keuangan “,Transparency,

Jurnal Hukum Ekonomi, Volume I Nomor 2 Feb-Mei 2013.

The Risk Mitigation to the Islamic Crowdfunding in Indonesia

243

Nur Aqidah Suhaili

stated that in Islamic

crowdfunding can apply waqf as an object of

fundraising, if so, then the supervisory function

related to waqf is regulated in Article 34 jo Article 36

of Law Number 41 of 2004 concerning Wakaf (State

Gazette of the Republic of Indonesia of 2004 Number

159, Supplement to the State Gazette of the Republic

of Indonesia Number 4459) (hereinafter referred to as

the Waqf Law). The provisions in the Waqf Law

stipulate that the authorized institution in the land

waqf field is the National Land Agency. Authorized

institutions in the field of waqf of movable objects

other than money are agencies related to their main

duties. Agencies that are authorized in the field of

waqf of movable objects other than unregistered

goods are Indonesian Waqf Board (Badan Wakaf

Indonesia).

6 THE LIABILITY OF THE

PARTIES

In common business transactions when the

distribution of results and achievements related to the

fulfillment of the contract is not appropriate, then the

liability efforts, compensations and sanctions are the

answer to the legal protection of Islamic

crowdfunding. In the national legal system as a

consequence of Article 1367 Burgerlijk Wetboek

which states that everyone must be responsible for

persons or objects under his control. As outlined

earlier, that crowdfunding systems that depend on the

internet are subject to the Act of Information and

Electronic Transaction/Undang-Undang tentang

Informasi dan Transaksi Elektronik (hereinafter

referred to as ITE Law ) Law, but in this ITE law there

is no explicit provision of the principle of liability is

adopted, The ITE law states that parties that conduct

electronic transactions must be performed under the

good faith principle, and among them three forms of

liability, namely (i) liability for errors (liability based

on fault), (ii) liability for negligence (negligence) or

(iii) principle of liability without error (strict

liability).

Nining Latianingsih stated that basically the

principle of liability that applies to businesses in a

crowdfunding system is the principle of presumption

Nur Aqidah Suhaili, “Crowdfunding: A Collaborative

Waqf Based Internet Platform”, International Journal of

Business, Economics and Law, Vol. 11, Issue 5

(Dec.),2016, p. 41.

Nining Latianingsih, “Prinsip Tanggung Jawab Pelaku

Usaha Dalam Transaksi Elektronik Menurut Undang-

of innocence. Basically, the liability of the

businessmen apply the principle of liability for

negligence, but according to its development began to

shift to the application of strict liability, especially in

transactions that have a large risk impact. Whereas

the provisions in the UU ITE applies the principle of

presumed liability to the businessmen, especially in

Article 17 paragraph (1) remind that among parties

must apply good faith, so the application of strict

liability must be seen in the certain cases so that there

is no loss to the other party.

7 BUILD AN ECOSYSTEM OF

ISLAMIC CROWDFUNDING

According to the Adam Ng,

while there are

challenges confronting this new sector, there are

unique opportunities for the development of an

equity-based crowdfunding ecosystem that comprises

the funders-investors, crowdfunding portals, third-

party services, technology, entrepreneur,

development organizations, and the government.

Four key enablers of a robust crowdfunding investing

ecosystem are (a). enabling policy and

comprehensive regulatory framework; (b).

community engagement; (c). entrepreneurial culture;

and (d). technology and infrastructures. To sum up

the risk mitigation of Islamic crowdfunding will be

effective or in the other words the legal protection,

the supervision and the law enforcement ruin as their

function if there is a harmony among the Islamic

crowdfunding community (service provider, funder,

and the SMEs) and authorized institutions to build an

ecosystem of Islamic crowdfunding which consicts of

policy and comprehensive regulatory framework;

community engagement; entrepreneurial culture; and

support by technology and infrastructure.

8 CONCLUSION

Some risks in Islamic crowdfunding are cyber risk as

a main risk inherent in to any transaction based on

information technology or depends on the internet,

legal protection due to lack of regulations, lack

supervision and lack of law enforcement as factor

Undang Informasi Dan Transaksi Elektronik”, Jurnal

Ekonomi Dan Bisnis, Vol 11, No. 2, Desember 2012, p. 71-

76.

Ibid, p. 10.

iN-LAC 2018 - International Law Conference 2018

244

from authorized institutions, in internal SMEs there is

legal/ sharia compliance risk due to lack of of

literation about the Islamic crowdfunding principle,

liability, system and mechanism, and this situation

lead to the herding on financing risk because of

default or expertise factors.

In order to the legal protection, in one side, it is an

obligation to the authorized body to perform risk

mitigation. On the other side, risk mitigation is

compulsory condition for service provider to apply

and thi srisk mitigation should be supported by SMEs

and the funder. The risk mitigation in Islamic

crowdfunding similar with Islamic bank or other

Islamic finance institution which is related to risk

management, legal protection, supervision, and

liability. Risk management itself has been covered by

risk identification, risk assessment, risk anticipation

and risk monitoring.

The main effort to mitigate the risk of Islamic

crowdfunding, the authorized institutions and the

Islamic crowdfunding community (service provider,

funder, and the SMEs) must create a harmony

atmosphere and start to build the ecosystem of

Islamic crowdfunding which consists of policy and

comprehensive regulatory framework; community

engagement; entrepreneurial culture; and support by

technology and infrastructure.

REFERENCES

A Adam Ng, Abbas Mirakhor, and Mansor H. Ibrahim,

Social Capital and Risk Sharing: An Islamic Finance

Paradigm, Palgrave Macmillan, New York, 2015.

Adiwarman A Karim, Bank Islam: Analisis Fiqih dan

Keuangan, Raja Grafindo Persada, Jakarta, 2007.

Bryan A. Garner, Black’s Law Dictionary, Tenth Edition,

Thomson Reuters, Texas, 2009.

Joachim Hemer, A Snapshot on Crowdfunding, Fraunhofer

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Khan Tariqullah dan Habib Ahmed, Manajemen Risiko

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Nur Aqidah Suhaili, “Crowdfunding: A Collaborative

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