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Equity crowdfunding (ECF) emerged as an alternative for Small and Medium Enterprises as well as start-ups (Issuer) to raise funds by selling securities to the public by using online portal-based platform (ECF Platform). Individuals who invest in the company are called equity-holder (Investor). Since the introduction of regulatory framework of ECF by Securities Commission in 2015, the number of funds raised through ECF platform has increased each year and so do issuers who have successfully reached the fundraising target. However, the funds raised declined in 2018. This happened due to among others, the presence of challenges faced by parties in ECF transaction which are investor, issuer and ECF platform operator. Hence, besides analyzing the concept of ECF, this study highlighting some of legal and potential Sharia challenges surrounding its application. This qualitative research utilizes primary and secondary data gained from scientific database analysis and library research including guidelines, statutes, books, articles, reports and precedents on ECF. The method of data analysis are jurisprudence and comparative assessment. The finding shows that the risk of loss, fraud and liquidity are common concern. Perhaps less obvious, but nevertheless present, are Sharia challenges due to indefinite power of Sharia Adviser and the differing thoughts on the structure of equity. The article concludes by stressing on the need to find the right balance between protecting investors and facilitating access to financing that can reduce the financial constraints on entrepreneurs. Failing which drive funders out of market.
Haniff et al. (Tue,) studied this question.