At the 2012 Milken Institute Global Conference, it was widely agreed between leaders across the Middle East that, “a lack of economic opportunity was a major, if not the main, catalyst for the start of the Arab Spring.” Crowdfunding is certainly a potential solution to the capital markets that are limited with venture capital and public offerings, unequal access to capital funding, economic inequality, and political instability.
The Arab markets that enable a more promising ecosystem for crowdfunding are United Arab Emirates, Jordan, Egypt, Saudi Arabia, and Lebanon. There has been a recent surge in new platform launches this past year, tending to be either reward or equity based.
A recently launched platform is the first platform designed to completely comply with Islamic law. Religious and legal experts must first approve projects before they go 'live'. Funding projects, which include alcohol or tobacco, are automatically rejected from financing. The platform is a promising manner to introduce and integrate crowdfunding with Islamic culture, especially for the older, more conservative Muslim population. Currently, investors and businesses have to be invited to join, severely limiting their size in the short-term.
The obvious way forward for the Middle East is for governments to encourage the industry through regulation. Investors need greater trust in the market, therefore, in general, governments must start off with providing structure and protection without maiming the freedom for an orderly and robust market to form. Money laundering and other forms of fraud must be regulated against, in order for crowdfunding to operate on an international level. Governments must start to support learning and training opportunities for aspiring entrepreneurs and “contend with onerous regulatory restrictions on employment and business ownership,” as proposed by Jason Best. In some Arab nations, incentives are provided for public sector employment rather than the private sector. The nature of politics will have to change for crowdfunding to reach its potential in the area and thereby aiding the relief of economic and political instability, underdeveloped capital markets, and the inequality to capital access.
As the Arab youth becomes more educated, but jobs become scarcer, many more are looking to crowdfunding platforms to finance their ventures. Through social media, it can be predicted that the emerging Arab youth is more prone to risk, as influenced by the West, thereby being more willing to look to crowdfunding. It is essential that the youth’s potential is harnessed through training and easier access to capital markets, in order for economic stimuli to create more jobs and revenue growth. There is still a long way to go before the Middle East may fully exploit the benefits of crowdfunding, but once the right regulations are set in place, the Middle East may even become one of the main markets in the world.
Swart, R. (2014). The Middle East: A Crowdfunding Market You’ve Never Considered. crowdfundinsider.com
Best, J. (2014). Why crowdfunding appeals to the Middle East. mckinseyonsociety.com
Photo Credit: Chris Nener https://bit.ly/p/c6Qqw1
Jasmien is currently studying a bachelors in Business Studies from Cass Business School in London while interning at Crowd Valley. Originally from Belgium, she grew up in Switzerland, Ethiopia, USA, and Japan.
She is very passionate about the start-ups, entrepreneurship, technology, and travelling; she aspires to one day become an entrepreneur.