Massive influx of venture capital into Islamic Fintech
Massive influx of venture capital into Islamic Fintech
No longer a nascent industry, as there are 142 projects worldwide (IFN), the Islamic Fintech is now acting as a ‘pull’ factor, creating a demand for professionally managed funding beyond the ‘triple Fs’ — the family, the friends and the fools. Digging deeper, we discover thousands of ‘conditionally Shariah compliant’ tech projects, lacking the Shariah certificates but avoiding any haram activities. Thus, according to Zoya mobile app which applies the AAOIFI standards to the companies’ financial data, TESLA (TSLA — NASDAQ) is 96% Shariah compliant.
So far, the proper Islamic venture capital (VC) industry has not kept up with the pace of the development of Islamic Tech. So the growth in funding will initially have to come from other sources.
Corporate and banking VC offshoots
The search for new market niches and higher profit margins leads corporations and Islamic banks to set up captive venture capital funds. We all cheered in June 2020 when Waed (Saudi Aramco Entrepreneurship Ventures) headed the US$25 million investment round into the Islamic robo-advisory Wahed Invest.
Waed’s goal is a simple one — ‘to ignite the spirit of entrepreneurship in Saudi Arabia’. Although, not strictly an Islamic fund, Waed operates in the economy which is largely Shariah compliant. In Malaysia, Petronas Ventures was set up to invest into related energy businesses. Still its first investment in June 2020 was into the ‘haramless’ smart farming startup Braintree Technologies.
Crowdfunded funds
Instead of having just a few limited partners, these funds will employ hard-earned money of thousands of Muslims (the entrance ticket starts at US$1,000). One of these “new model” funds, Ummah-21Century is being set up in Malaysia in the fall of 2020. Another one, ANPRI Ventures is looking at ADGM. The latter will not only be crowdfunded but also crowd managed — its key investment decisions will be made by the LPs via an online voting procedure.
Conventional VC funds
Many of the Islamic Fintech projects are being funded by conventional VC funds, which are not as concerned about the Ummah but still value the future financial performance. For example, the Indonesian Fintech star Alami was funded by three conventional VC funds; in Russia the Islamic charity startup PayZakat accepted investment from the state-owned Sberbank.
But there are the “winds of change” moving across the Islamic finance and banking landscape. We will be seeing more “Social Responsibility” VC funds in the Gulf and the SEA. Deng Xiaoping once said, “It doesn’t matter whether a cat is black or white, as long as it catches mice”. So, we are prepared to welcome these social responsibility players, as they will serve well the Islamic economy.
