The emergence of Islamic Corporate Venture Capital
Corporate Venture Capital, or CVC is defined by the Business Dictionary as the “practice where a large firm takes an equity stake in a small but innovative or specialist firm, to which it may also provide management and marketing expertise.
The objective is to gain a specific competitive advantage.
According to Pitchbook, in 2019 in the US the CVCs participated in over 25% of all venture capital deals, and along with other “tourist” VC investors (asset managers, PE funds and sovereign wealth funds) control up to USD 340 billion in “dry powder”.
I have written in numerous occasions that most of the venture investments into Shariah compliant tech projects were actually made by conventional VC funds. The Islamic tech is mainly Fintech, so would it not be reasonable to assume that 2021 will bring the emergence of the CVCs run and funded by Islamic banks?
Fintech is a fabulous field — in 2019 corporate venture investors globally funded 3,234 deals worth a total of USD 57.1 billion.
The objectives of regular VC funds are mostly limited to making a few “X” return on the original investments. The CVCs, on the other hand, invest to increase the sales and profits on the incumbent firms’ businesses. The main goal is to identify and exploit synergies between the new ventures and the investor’s business.
The best known corporate venture funds include Google Ventures, Intel Capital, Baidu Ventures and the likes. Among the bank-related and fintech intensive are — Mitsubishi UFJ Capital and Citi Ventures.
As of December 2020, the Islamic Finance Network landscape includes 151 Islamic Fintech companies.
They cover all fields in finance — from payments and remittances to investments, from data analytics to cryptocurrencies. And all of these services are going to revive the now most stagnant segment of Islamic finance — the Islamic banks.
In 2019, Tian Chua, chairman of the Malaysia Productivity Council, said, “24% of the world’s population is Muslim, of which 71% do not have financial bank accounts.” Competing with conventional bank may start with this captive segment.
Having learned the power of remote services in the COVID-environment, Islamic banks are taking a closer look at Shariah compliant fintech. Direct investments are still rare — Insha is supported by Al Baraka, and PayZakat received funding from Sberbank of Russia. But the pipelines are getting longer and larger.
With the great certainty I am prepared to name the top 5 list of 2021 sponsors of Islamic corporate venture capital firms — and let’s square this prediction in 12 months. My champions are:
4. Qatar International Islamic Bank
5. SberInvest Middle East
