A New Crowdfunding Model for Financial Inclusion Based on Donations and Interest-Free Debt: A Fuzzy Agent-Based Simulation Approach

Abstract

Purpose — Although microfinance was initially heralded as a promising methodology for reducing poverty, it has become increasingly criticised. Hence, calls for innovative models that promote financial inclusion have intensified. This research aims to fill in this gap by developing a new model that combines donation-based crowdfunding with interest-free lending, and subsequently evaluating its performance using appropriate decision-making tools. Design/Methodology/Approach — The study adopts an agent-based perspective whereby the idea is to encode the behaviour and decisions of the model’s entities in straightforward rules and subsequently analyse the outcomes of their interactions through agent-based simulation (ABS). To address the uncertainty inherent in human agents’ judgements, a fuzzy logic inference system has been incorporated as well. Findings — Findings show that the proposed model has (i) a better success rate in funding new entrepreneurs, (ii) higher collection of management fees, and (iii) a reduced number of failed projects. This model incorporates monitoring to reduce moral hazard risks and provides health and life insurance for entrepreneurs, ensuring both project efficiency and the well-being of the entrepreneurs. Originality/Value — This study contributes to the Islamic crowdfunding (ICF) literature by introducing a new hybrid model that integrates donations with interest-free loans. It explores the impact of this design on crowdfunding platform success and the well-being of micro-entrepreneurs, using an agent-based perspective. Research Limitations/Implications — Despite its merits, the proposed model has certain limitations. Like many crowdfunding models, entrepreneurs who fail to secure financing may be susceptible to the risk of idea theft. Concerning model validation, although a significant portion of the model’s data is calibrated using real data, the conception and simulation introduce certain free parameters (such as the learning factor and monitoring efficiency), which renders the validation process somewhat challenging. Practical Implications — This innovative solution can help crowdfunding platforms refine their policies and interventions to enhance project funding success and contribute significantly to broader financial inclusion efforts.