Islamic venture capital — the action is moving west
The year 2023 is just starting but the expectations of a booming year for Islamic venture capital are almost tangible. SVC — Saudi Venture Capital, a government investment company that was set up in 2018 to provide financing for startups (from pre-seed to pre-IPO) via investing in venture capital and private equity funds, has become a moving force in the region. For many local and domestic entrepreneurs, Dubai has always been №1 choice of setting up a startup. This is no longer the case. The business environment in Riyadh and Jeddah is now more conducive to growing up SMEs, and so is the availability of the development funds. Overall, the investments in Saudi startups went up 72% in 2022. And the allocation of funds into Shariah compliant projects is closer to 20% of the total amounts invested (the world’s average still lingers around 1%). The ideas of the Saudi 2030 Vision are being implemented. Let’s now wait and see if Dubai’s 2033 $8.7 trillion economic plan will allow the emirate to regain its footing.
Malaysia and Indonesia have long been preferred centers for Islamic startups, especially, the fintech ones. Malaysia-based Ethis and Finterra, as well as Indonesian ALAMI Sharia and Blossom Finance still dominate their respective fields. But the Islamic fintech vector is shifting west. The IFN Fintech Landscape has always been a great indicator of Shariah compliant trends. It used to be totally dominated by Malaysian and Indonesian companies. Now for 52 Malaysian and 52 Indonesian companies that operate in the field, there are 41 from the UK, 33 from the UAE and 31 from Saudi Arabia. This is a simple illustration that for a healthy development of Islamic VC and PE industries the influx of capital is paramount. And in our market presently there is no match to combined Saudi 2023 Vision policy and the financial might of SVC and Wa’ed Ventures, the venture capital arm of Saudi Arabian Oil Co.
Are we seeing an irreversible trend? Not exactly. “Smart money” can always beat “Big money”. The South-East Asian players can stay more focused on exactly Shariah compliant projects and seek co-investors from the conventional side. Last year we saw a launch of a $20 million seed fund from Gobi Partners and Ethis Group. Just a few weeks ago an announcement about Malaysia’s Ficus Capital launching a new MYR 60 million, came through. And in Indonesia, ALAMI Sharia and its peers will keep raising funds from conventional sources, often outside of the formal venture capital market — the latest investment ALAMI received was from a cosmetics company, although with Halal brands.
This is going to be the most existing year for Shariah compliant startups so far. The companies have matured, the capital now becomes available. I am getting ready for a boom.
