What are the most lucrative sectors in Islamic finance for entrepreneurs to tap into?
Islamic finance is a top-heavy industry: large and medium sized banks dominate the headlines while major gaps abound in other sectors of the industry. At Ethica we’ve seen that early stage venture capital, waqf finance, microfinance, research, training, advisory, and media are among the many under-served areas that offer substantial opportunity for entrepreneurs. In a market where major institutions are still not hiring at the pace they were several years ago, it is time to look beyond the standard banking job and explore start-up opportunities.
How can Shariah-compliant financing benefit entrepreneurs in comparison to raising conventional financing?
Entrepreneurs raise capital using debt or equity. Debt focuses both lender and borrower on the debt because the ultimate objective is repayment. Equity, on the other hand, focuses investor and issuer on the business: its viability, profitability, and, depending on the stage of investment, its short and long-term prospects. Shariah-compliant finance, where the financing is equity-based such as with a Musharakah or Mudarabah based structure, rather than a conventional financing or even an Islamic financing based on debt, such as with a Murabaha, Salam, or Istisna, accomplishes this.
There are many Islamic financial hubs around the world. Which countries hold the most opportunities for entrepreneurs and why?
Ethica currently serves professionals and students in 61 countries, so we have some sense of the relative strengths of different countries during this protracted financial crisis. Africa, South Asia, Central Asia, and outliers like Canada and Australia show continued promise and hold near-term opportunity for budding entrepreneurs. At a time when banks in the traditional Islamic financial hubs are downsizing or freezing their hiring, we see many countries in these regions launching their Islamic finance sectors and issuing licenses. It is during these early years of a country’s Islamic finance industry that Islamic finance entrepreneurs have an opportune time to launch their companies.
What advice would you give to an entrepreneur who is new to Islamic finance?
First, regardless of what kind of business you decide to launch, you will need to know the basics about Islamic finance. Becoming conversant in Islamic finance means knowing the core products and how they work. At minimum, you should understand these products and their limitations according to the leading Islamic finance standard in the world, the de facto standard for 90% of the world’s Islamic finance jurisdictions, AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions). Their Shariah Standards guide is available at www.aaoifi.com. If you cannot sit and learn directly from a scholar who has a working understanding of these products according to AAOIFI standards, you should learn from an educational institution, of which there are several currently in the market today. And finally, you should begin working on your idea today. The need to “get experience first” is highly overrated. Nothing prepares you better for succeeding in your future business than going ahead and launching your future business. Put pen to paper and start your business plan now. Ethica offers a “Recommended Reading List for Entrepreneurs” in its Handbook of Islamic Finance, a free 700+ page e-book available by writing to contact@ethicainstitute.com. For starters, start reading 37Signals’ excellent e-book “Getting Real” available for download at their website.
