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Page 4 of 4 $100,000Still on the drawing boards at some Islamic banks, education finance is a Shari‘a-compliant possibility we should continue to explore. Among the structures recently proposed is one from Mufti Muhammad Imran Usmani, one of the world’s leading Shari‘a advisors on Islamic banking, in which a service-based ijarah (Islamic lease) is used to finance an education. In such an arrangement a financier, such as a bank or angel investor, partners with an educational institution. The fi- nancier pays the educational institution the cost of the education and concurrently creates an educational package sold at a premium that includes tuition, room, board, books, and other expenses. The student enrolls and repays the financier in installments or as a lump sum at some future date. The package is priced attractively enough for both financier and student, while the educational institution only signs the documentation necessary to create the partnership with the financier. The financier might also negotiate a discount with the institution for multiple packages, and pass some of the savings on to the student. Obviously, it would be ideal to simply give the money away, but this poses the usual problem: limited institutional interest. In order for education finance to interest banks, Islamic or otherwise, and thereby achieve the scale necessary to reach everyone, there must be profits. But unlike conventional interest-based loans that compound mercilessly year-in and year-out after the student graduates, Islam does not permit simple or compounded interest or rollovers: rescheduling a debt is permissible, increasing it is not. The market for Shari‘a-compliant education financings is substantial enough to potentially rival the home financing market, and do so while offering shorter tenures. It is now a matter of a handful of intrepid individuals creating the grassroots awareness, and the institutional leverage, for interest-free education finance to become a ground reality. Until then, with the assistance of a qualified Islamic scholar, individuals should consider approaching banks independently. $1 MILLION Islamic venture capital. Three words rarely found together, and yet the very essence of venture capital is thoroughly Islamic. Sadly, the single largest economic “community” in the world, the Muslims, have almost zero institutional equity-based capital organized for start-up businesses. Today, a Muslim entrepreneur seeking to raise cash to bring a distinctly Islamic product to market has no one to turn to except family, friends or the local interest-based bank. In a post-/ environment of highly regulated capital flows, American and British Muslims are flush with capital that otherwise would have left the country as donations, remittances, or investments. There is no better time to conduct a funding round among these Muslim investors to raise capital for a venture fund that targets high-growth Muslim businesses, or a “social” venture capital fund that seeks economic uplift in addition to profitability. The typical venture capitalist, sometimes a handful of cash-rich bankers and often a former entrepreneur-turnedangel- investor with a keen eye for picking potentially pro- fitable companies, provides seed capital to a high-growth business in return for an equity share in the company. Most of the fund’s capital invests in about a dozen companies, of which only about two or three are really expected to generate significant returns. Gone perhaps are the go-go dotcom days of two kids, a garage and a pre-revenue, pre-product business plan, scoring a multi-billion dollar financing. But if the successes of Intel, Apple, and Netscape are anything to go by, not to mention the continued interest for post-product bricksand- mortar companies, venture capital is still the single most attractive form of Islamically acceptable start-up financing. |