Capital investment ? Middle Eastern and Islamic Venture Capital Market


The Islamic & Middle Eastern Market Venture Capital Despite the fact that there are literally millions of Muslim entrepreneurs in both developed and developing countries in search of investment capital for their new start-ups, is the realm of Islamic venture capital in an evolutionary state. However, the untapped potential of Islamic venture capital remains enormous. Moreover, the Islamic world has more than its fair share of investors with high-end net worth a lookto invest in potentially lucrative deals. To lead the convergence of both a “necessity” and a “delivery” will inevitably mean that the creation of a new product, and it is also so in the case of purely Islamic venture capital.

The core is all planned Islamic finance business that Sharia law prohibits (Islamic law) interest-based lending. In addition, Sharia prohibits further investment in specific activities as a violation of Islam, are seen as tooGambling.

However, to do essentially the mechanics of venture capital for not lending. Rather, the core of a venture capital financing is an agreement to participate in the risks of the enterprise in return for the profits derived from such business venture.

As such, rather than hold it against the Islamic law, many scholars, that venture capital funding in line with one of the cornerstone principles of Islam: There is muchinvestment required for start-up companies in return for potential profits, while accepting the risks that may be involved in such a transaction. This kind of structure in Islamic finance mudaraba is funding, which is used for many centuries in the Islamic world.

Structuring an Islamic Venture Capital Deal

The exact translation of a mudaraba financing is a contract under which a person (the investor and Rabal-maal known), brings the fundingand (the other person of the entrepreneur as mudarib known), brings expertise and effort. Together, they share the profit ratio according to the predetermined arrangement.

Fundamental to the mudaraba financing structure, however, is the fact that the entrepreneur running the risk of being given a financial investment / value. If the business venture fails, the entrepreneur will lose the maximum investment they make in the corporate sector itself (ie, couldtheir own money), and all the time and effort they companies in the. The reason why this is the case because under Islam, one can not lose, not what you contribute.

Moreover, strictly speaking, under a mudaraba financing structure, the investor is not allowed, in the management affairs of the enterprise, we have invested in which they participate, they are just an investor – period. Day-to-day and overall management of the company must be left to the entrepreneur.

Differences between Islamic and Western VC funding

While the mudaraba Islamic financing structure does not provide for a form of venture capitalism, it also raises some questions that the West can find venture capital fund is un-relaxed.