We’ve developed an innovative financing platform called “Co-Financing” that utilizes a concept of crowdfunding called Rotating Savings and Credit Association (ROSCA). Co-financing Funding System depends solely on its clients (members) to self-funding their vehicles purchase. The Co-Financing platform is made of overlapped clusters. Each cluster has a number of clients (members) that come together to fund purchasing an equal number of cars to the members in the cluster. As an example, a car worth $40,000 can be funded through a cluster of 60 members to fund buying 60 cars each worth up to $40,000 (plus 5% GST and $600 Dealership fees) over 60 months total term (5 years) by paying $736/month/member. Every month one member will get the total of $42,630 monthly fund on his/her funding turn, which determined based co-Financing arrangement criteria, to use it toward buying a car. The members of that cluster will be arranged to take turns receiving the monthly fund based on their credit check results. This process will lineup members with strong credit history to receive their monthly funds earlier than the members with weak credit history. The process will help members with less credit to buy cars by paying time instead of interest. So, while the strong credit customers (less financial risk) will get their cars at early stage, the members with weak credit history (higher financial risk) will accumulate enough funding toward purchasing their cars before actually buying them in a later stage to help lowering their risk. The process will help all members to build stronger credit history by properly reporting their payments to credit bureau whenever applicable.
To access Co-Financing funding, all members will be required to pay $100 one-time financing application non-refundable flat rate fee due immediately to complete member credit check application, which will determine the member turn to receive monthly fund in the Co-Financing matrix of 60 members. At this point, the member will have the right to decide to join the cluster or not. Once the member agreed to join the co-financing cluster, a 4.75% of the fund base amount will be due immediately as one-time upfront fee to complete the signing-up process and place the member on his/her turn in the cluster (in case of the $40,000 example, the 4.75% fee will be $1900). Also, a $25 administration and payment processing flat rate fee will be due every month.
In case of the $40,000 example, the $1900 fee breakdown is as follow:
- 1.75% ($700) will be paid to Crowd Strategies to manage the cluster over the 5 years term.
- 2.00% ($800) will be held as safety fund in case the member defaulted during the term and couldn’t pay the monthly fund of $736 till replacing him/her with another member.
- 1.00% ($400) will be paid to the Islamic organization/scholar to review and monitor the process to guarantee transparency and Sharia compliance.
Once the cluster is ready to launch, the monthly payment of $736 (includes the $25 administration and payment processing flat rate fee) will be due, and will be collected via per-authorized payment agreement from the member’s bank account directly and automatically every month on the first day of the month. A Co-financing matrix of 60 members can be launched with as little as 40 members only.
The Co-Financing platform matrix is designed to provide high level of flexibility to allow different funding amounts and different terms especially when launching the 10 overlapped clusters, which will allow more flexibility across multiple clusters. The $40,000 is enough loan to buy decent new or used vehicle. However, the favourable target market for the Co-financing platform is $25,000 – $40,000 vehicles.
Co-financing qualifying Criteria:
Everyone is qualified as long as he/she financially able to pay:
- 4.75% Co-financing Fees
- Monthly instalment
Co-Financing Arrangement Criteria will be used, based on members professional credit check, to arrange them as follow:
– Strong credit buyers get cars first
– Weak credit buyers get cars last
Handling Defaults:
In case a member, or more, of any cluster couldn’t pay the monthly instalment, this default situation will be handled as follow:
Before buying the car:
At this stage, the member didn’t take possession of the car yet and what he paid so far would consider as premiums toward getting the funding benefits. Legally, he/she may not get their money back, their contract will be cancelled and penalized for defaulting/early cancellation. However, since Co-Funding is built on Islamic principals of fair trade and risk sharing, the default in this case is proposed to be handled as follow:
- Replace default buyer with another new buyer who pays the 4.75% fees that goes to old buyer. In some cases, may charge penalty.
- The new buyer continues to pay from where the old buyer defaulted to the cluster.
- After completing payments to the cluster, the new buyer continues paying the remaining instalments to the old buyer to get his/her money back after paying outstanding fees, if any.
After buying the car:
In this situation, the member took possession of the car already and the contract became a regular car loan agreement, which in case of defaulting, the car will be taken away from the member, and will be offered for sale. The applicable penalties and cost of depreciation will be charged to the defaulted member. However, since Co-Funding is built on Islamic principals of fair trade and risk sharing, a different approach will be tried first before applying the standard default procedure as follow:
- Replace the defaulted buyer with a new buyer who will immediately take possession of the same car, which he/she can use it or put it in the market to sell it (this can be a business opportunity to others).
- The new buyer pays 4.75% fees, which will be held till the old defaulted buyer account closed.
- Old defaulted buyer may pay extra cost, penalty, losses or depreciation.
- The new buyer continues to pay from where the old buyer defaulted.
- After completing payments, will decide who gets the remaining instalments based on the old defaulted buyer account status.
The Opportunity:
For members of the Muslim community: Access to innovative solution to buy cars interest-free, while lowering the barrier of entry to the less fortunate members to own cars by paying time instead of inflated compound interest.
Non-Muslims are welcome to utilize this funding opportunity as long as they agree to adhere to the Islamic principals that this platform was built based on.
For non-profit Muslim organizations: An opportunity for sustainable funding and a chance to help the Muslim community to get access to new form of Halal car loans.