2021: The emergence of Islamic business angels
Are we going to see a massive entry of “Al Mustathmirin al-Malak” (angel investors) in the developing Islamic economy? I would venture a guess that we are, and rather sooner than later.
Business angels are the individuals who provide capital for business startups at initial stages, when the risks are at the highest, and the companies can no longer grow internally. These brave souls hold the keys to the technological development of the world, as they come when the resources from the “FFF” — the Family, the Friends and the Fools had already been exhausted, but the startups are still invisible to the venture capitals (VCs). Only in the US some 300,000 business angels invest over US$25 billion per year to support 70,000 growing businesses.
The business angel culture is yet to penetrate the conservative world of Islamic finance which is still largely based on Sukuk and commodity Murabahah deals. And despite seeing a number of conventional VCs investing in Islamic fintech companies, there are virtually no conventional business angels who would dare to support the very early-stage Shariah compliant companies. The lack of development capital leads to a rather modest level of entrepreneurship. Unlike the VCs, the business angels invest their own money and often are willing to provide their expertise to support their investment.
There had been numerous attempts to alleviate such capital deficit by the governments of the GCC countries and Malaysia, but most of those efforts had targeted the entire universe of early-stage startups, and not the Shariah compliant ones. And with all things equal, the majority of such capital ended up supporting conventional startups, as they were easier to understand, and had not had to deal with “complicated” issues of Fiqh and Shariah compliance.
Islamic fintech as an undercapitalized industry. With the lack of business angels, most Islamic fintechs do not get a chance to grow big enough to get noticed by the VCs.
The situation is changing. Albeit slowly. Islamic Finance Guru recently launched IFG.VC angel syndicate platform that connects Muslim entrepreneurs with Muslim investors. The platform invests between GBP 100,000 and GBP 250,000 in each Seed to Series A startup. Investments in the companies are done via Musharakah or Mudarabah. The minimum investment ticket size is GBP2,500. Being a part of a successful Islamic project, this platform has more than a reasonable chance to prosper. Also, in the UK, Angel Investors Club and iE5, support Muslim entrepreneurs.
In other regions Islamic business angels may choose Halal Angel Network that seeks to tap the US$5 trillion (this number is disputed) Halal consumer market. It seemed to have made quite a news splash in the mid-2020 but since had kept a lower profile.
2021 will also see the launch of Malaysia-based DigiWaqf, a tech Waqf that will use its investment income to provide grants to Islamic fintech projects.