Islamic Finance

CASE STUDY–A Kapital Boost for Shariah-compliant Southeast Asian SMEs

| 06 December, 2015 | Case Study
Emmy Abdul Alim
CASE STUDY–A Kapital Boost for Shariah-compliant Southeast Asian SMEs
(Photo: Kapital Boost team at the Idealab session for startups, World Islamic Economic Forum 2015, Kuala Lumpur. From L to R: Ronald Wijaya (Partner, Indonesian representative), Firdaus Shariff (shareholder), Erly Witoyo (co-founder, Managing Partner), and Umar Munshi (co-founder, Partner) / Courtesy Kapital Boost)



Erly Witoyo and Umar Munshi

Founded July 2015
Headquarters Singapore
No. of employees

4 (3 Senior Management + 1 intern)

Funding deals

Slightly more than 200,000 Singapore dollars ($142,000) from seven deals since July 2015


5 percent of total funding amount. Failed campaigns are charged a fixed fee of 50 Singapore dollars to cover administrative costs

Shariah-compliant status

Currently consults with several Islamic scholars based in Singapore, and working to get Shariah-compliant certification from a local Muslim organisation


Kapital Boost is an Islamic crowdfunding platform that targets SMEs in Singapore and Indonesia. The company positions itself as Southeast Asia’s first Islamic P2B crowdfunding platform.

Erly Witoyo, the company’s co-founder and Managing Partner who overlooks Risk Management, told Salaam Gateway in a phone interview that Kapital Boost provides working capital for Shariah-compliant SMEs with funding from a pool of registered member investors.

“One of the criteria [to qualify for funding] is that we want the companies to have purchase orders so at least we know there’s going to be cashflow and there’s business coming in over the near term,” said Witoyo.

“These companies may have these purchase orders and they have sales to customers but they may not have enough funds to actually purchase the inventories. So that’s where we come in and help provide them with the funding.”

The crowdfunding platform has raised slightly more than 200,000 Singapore dollars from seven campaigns since it started operations in July this year. This is divided between four SMEs in Singapore and three in Indonesia. It is in the process of funding the eighth, for a Singapore SME for the sum of 100,000 Singapore dollars.

The platform is eyeing expansion into the Malaysian market.

It is aiming for 5 million Singapore dollars in deals for 2016 for all three markets, Witoyo said.


There are several equity- and debt-based crowdfunding platforms native to Singapore, Indonesia, and Malaysia. The only other Shariah-compliant platform in operation, Singapore-based Club Ethis, is a real estate private crowdfunding network focused on Indonesia. It was set up by Kapital Boost’s co-founders Witoyo and Umar Munshi in March 2014.

GandengTangan in Indonesia is a zero percent crowd lender but it focuses on social entrepreneurship and “good cause” businesses instead of profit-making SMEs.

Biggest crowdfunding platforms native to Singapore, Indonesia, and Malaysia
Singapore Indonesia Malaysia

Crowdo (2012), also operates in Indonesia and Malaysia

CoAssets (2013), targets real estate projects across Asia Pacific

Moolah Sense (2013)

Crowdtivate (2014), also operates in Indonesia

New Union (2014)

Club Ethis (2014), targets Indonesian real estate market

Capital Match (2015)

FundedHere (2015)

Kapital Boost (2015), targets Singapore and Indonesia 

Wujudkan (2012), focuses on creative industry

KitaBisa (2013), focuses on crowdgiving to social causes

AyoPeduli, focuses on crowdgiving to social causes

GandengTangan, zero percent interest lending to social entrepreneurs and “good cause” businesses

In June, 2015, Malaysia became the first Southeast Asian nation to pass legislation on Equity Crowdfunding and simultaneously approved six platforms: Alix, Ata Plus, Crowdo, Eureeca, PitchIN. And Propellar Crowd+.

Of the six, Ata Plus and PitchIn are the only Malaysian companies, and the former is the only Shariah-compliant platform.

PitchIN currently operates as a crowdfunding platform for creative projects and is not a crowdlending or investment platform for businesses.

Propellar Crowd+ aims to use Malaysia as its ECF hubv for ASEAN.


1.     Filling the financing gap as risk-averse banks lend more to corporates

Banks are risk-averse to financing SMEs primarily because they lack collateral, track records, and are less transparent. When banks do extend financing to SMEs, smaller companies end up paying higher interest rates related to their default risk.  

SME bank loans averaged 11.6 percent of GDP and 18.7 percent of total bank lending in Asia Pacific region, with loans from non-banking financial institutions even lower, according to Asian Development Bank’s (ADB) Asia SME Finance Monitor 2014.

Of the three markets targeted by Kapital Boost, Indonesia has the largest micro, small and medium enterprises (MSME) sector by contribution to GDP (around 60 percent) and employment (approximately 97 percent), according to ADB.

Access to financing for MSMEs has been taken up as a strategic concern by the Indonesian government and, among other policies and initiatives, action has been taken to reduce lending rates to SMEs under the state’s People’s Business Loans scheme.

Rates were slashed from 22 percent to 12 percent this year and they are to be further reduced to 9 percent in 2016. In Indonesia, high interest rates are curbing investment and economic activity. Indonesia’s average lending rate is 11 percent compared to Malaysia’s average 5 percent and Singapore’s average of 3 percent.

In contrast, financing on Kapital Boost is cheaper for Indonesian SMEs, as they are backed by firm purchase orders. “The profit margins for the murabaha deal for three months is around 5 to 7 percent. For 10 months it’s around 10 to 14 percent,” said Witoyo.

The first deal on the platform, for Indonesian batik manufacturer PT Produsen Batik, was priced at 7 percent profit rate for a 55,000 Singapore dollar financing with a three-month tenure. The same company returned for a second round of financing and with a proven track record from the first campaign it was rewarded with another three-month financing, of 20,800 Singapore dollars, at a lower 6 percent profit margin.

2.     Increasing Islamic investments, especially for Singapore-based investors

Kapital Boost hopes to increase the value and volume of Islamic financial investments in the region, especially in Singapore, which has the smallest Islamic finance sector of the three countries.

In 2014, Malaysia’s Islamic finance assets reached $415 billion, Indonesia held $40.39 billion, and Singapore $3.3 billion, according to Thomson Reuters’ Islamic Finance Development Indicator report 2015.

For the Singapore investor seeking Shariah-compliant returns, stocks or commodities require a very high appetite for risk due to their volatility, and real estate and sukuk would require a lot of capital that are beyond the reach of the middle or lower-middle income population.

Minimum investment on Kapital Boost starts at 1,000 Singapore dollars, which is within reach of the average Singapore worker, whose median salary was 3,770 Singapore dollars in 2014, according to government statistics.


Kapital Boost faces three key challenges.

1.     Crowd funding is currently unregulated in Singapore.

The Monetary Authority of Singapore (MAS) is in consultation with the industry, and in February this year released proposals for what it calls “securities-based crowdfunding”. According to Witoyo, Kapital Boost has consulted with the MAS and everything “has been fine” so far.

2.     Low levels of investor awareness about Islamic finance

Kapital Boost has a registered member database of around 900 which it shares with its sister company Club Ethis. 90 percent of all members are from Singapore and the remainder from Southeast Asia. It has also attracted 1 UK and 1 South Korean investor, according to Witoyo.

Almost all are private individuals but the company will aggressively market their services to institutional clients once it has built a good track record, said Witoyo.

However, less than 10 percent of the entire pool of registered members have invested in any campaigns, largely due to unfamiliarity with the murabaha financing structure.

The murabaha structure is relatively straightforward, but the perception of Islamic finance as an alternative system leads potential investors to assume it is more difficult than it actually is, said Witoyo. To overcome this, Kapital Boost educates investors through seminars and leverages social media extensively.

3.     Mitigating credit risk

Kapital Boost’s main criteria for eligibility requires SMEs to have at least a year’s track record, sales of at least 100,000 Singapore dollars in the last 12 months, positive cash flow, and receivables to support asset purchase.

These criteria also effectively exclude startups. This, according to Witoyo, is a strategic decision as funding startups is inherently a riskier business.

Witoyo explained why the debt-based murabaha financing is used:  “[Murabaha] is what we’re starting out with because it’s probably the simplest type of structure for Islamic finance funding and we want to be good at murabaha first, making sure risk is low for the investors as well. Once we perfect this model then hopefully, we can go to other financing models like mudarabah,” says Witoyo.

The first level of due diligence is business screening to weed out non-Shariah-compliant SMEs and then an assessment on legal business risks, financial risks and corporate governance is conducted.

“We try to get as much as we can until we’re comfortable that the risks are well-covered and that the ability of the company and their willingness to re-pay is high. In terms of not providing all the information, that’s partially associated with the higher risk premium. And we do point that out to our investors, that investing in SMEs is risky,” said Witoyo.

In Indonesia, the company partners with Tangan di Atas, the largest SME community, to do the first level due diligence and monitor SMEs in terms of re-payment.

In Malaysia, the company is finalising terms with a potential local partner, Witoyo said.

The company partners with UK startup Friendly Score to determine the credit-worthiness of SMEs based on their social media activities. However, Witoyo said that this is not the main focus of their due diligence process.


Kapital Boost recently won an award in the Social Enterprise Startup of the Year category at the inaugural ASEAN Rice Bowl Startup Awards, which recognise rising startups that use technology to advance their business regionally. They are organised by Malaysian non-profit the New Entrepreneurs Foundation, which was established by companies in the ICT and creative industries in partnership with the government of Malaysia.

The company beat over 30 other startups in the category.

Winning the region-wide award also puts the company on investors’ radars as Kapital Boost itself seeks funding to expand.

“Right now we’ve four staff and we definitely need to grow and we’re looking for funding. Once we get the funding we’re going to hire more people especially to work on the marketing side and working on the technology to improve the efficiency in terms of all aspects of the business in the investment process especially,” said Witoyo.


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