Origins, Evolution and the Future
Studies in Islamic Finance, Accounting and Governance series
Chapter 15: Venture Capital
I am of the opinion that venture capital is going to be the rising star of Islamic finance. This is because venture capital (VC) is a Shari’ah based instrument and though risky, embodies huge profit potential. In this chapter, we will discuss the remarkable Islamicity of this Silicon Valley instrument and its incorporation into the Islamic capitalism of the future. As it is well known, venture capital is a highly dynamic financial system that has successfully introduced the most advanced technology, provided tens of thousands of new jobs and created massive export potential, first for the American economy, and now increasingly, for Europe1 and India.2 The American venture capital industry has invested a total of US$7 343 238 700 in 1995. This amount shot up to more than US$100 billion in 2000 and was then reduced to US$18 billion in 2009 due to the latest crisis. Numbers of deals were 1863 in 1995, which increased to 7979 in 2000 and reached 2916 in 2009.3 In Malaysia, by contrast, the total committed funds under management as at 31 December 2007 was RM3.3 billion.4 But this may increase rapidly because over the next five years American VC funds plan to increase their commitments in emerging markets. Asia is expected to receive 70 per cent of VC investments in these markets. Malaysian ICM believes that Islamic venture capital will be the distinguishing factor that differentiates Malaysia from other emerging markets.5 Let us now describe the classical venture capital industry as...
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