Abstract
One of the common problems faced by worldwide SMEs including Malaysia is accessing external financial services. Given this fact, this chapter offers a sustainable model of source of financing for Malaysian SMEs in meeting their financial need, which is known as Islamic Crowdfunding-Small and Medium Enterprises (ICSMEs) model. Authors review comprehensive literature by focusing on the issues of financial accessibility faced by Malaysian SMEs, and the existing studies relating to SMEs, crowdfunding, and Islamic finance in support to construct ICSME model. Authors discuss the modus operandi of the proposed ICSME model and offer several significances of the model.
TopIntroduction
Small Medium Enterprises (SMEs) in Malaysia accounted for more than 90 percent of the total number of business establishments in the years 2010 and 2015 as presented in Table 1. Of this, the services sector consisted of about 90 percent share, which was followed by the manufacturing and agriculture sectors. SMEs in Malaysia participate in almost all business activities of various economic sectors. SME Malaysia is classified based on the annual sales turnover of a business or the number of employees working in SMEs and by different economic sectors. Drawing on SME Annual Report 2015-2016 (2016), from the year 2014 onwards, the annual sales turnover of not exceeding RM50 million or full-time employees of not exceeding 200 workers employed for the manufacturing sector is defined as SME Malaysia. While, for services, primary agriculture and other sectors, annual sales turnover of not exceeding RM20 million or full-time employees of not exceeding 75 workers are categorized under SME Malaysia.
Table 1. Number of establishments in Malaysia by firm sizes and by economic sectors.
| Year | 2015 | 2010 |
| Sector | SME | Large Firms | Total | SME | Large Firms | Total |
| Services | 809126 | 9185 | 818311 | 580985 | 10898 | 591883 |
| Manufacturing | 47698 | 1403 | 49101 | 37861 | 1808 | 39669 |
| Agriculture | 39158 | 1400 | 40558 | 6708 | 2121 | 8829 |
| Construction | 10218 | 1410 | 11628 | 19283 | 2857 | 22140 |
| Mining and quarrying | 865 | 161 | 1026 | 299 | 119 | 418 |
| Total | 907065 | 13559 | 920624 | 645136 | 17803 | 662939 |
Source: SME Annual Report, various issues.
Key Terms in this Chapter
Islamic Finance: Corporations in the Muslim world, including banks and other lending institutions, raise capital in accordance with Sharia, or Islamic law. It also refers to the types of investments that are permissible under this form of law.
Hibah: A gift of an asset(s) made voluntarily by a donor during his/her lifetime to the beneficiary without any consideration.
Profit and Loss Sharing: Method of finance used by Islamic financial or Shariah-compliant institutions to comply with the religious prohibition on interest on loans that most Muslims subscribe to.
Murabahah: Referred to as cost-plus financing, it is an Islamic financing structure in which the seller provides the cost and profit margin of an asset.
Integrated: Two or more things combined in order to become more effective.
Crowdfunding: The practice of funding a project or venture by raising money from a large number of people who each contribute a relatively small amount, typically via the Internet.
Small Medium Enterprise: Non-subsidiary, independent firms that employ fewer than a given number of employees. This number varies across countries. Small firms are generally those with fewer than 50 employees, while micro-enterprises have at most 10, or in some cases 5, workers.
Sadaqah: The concept of voluntary giving in Islam, fi sabillilah (for the cause of Allah).