Fundamental Requirements for Building an Islamic Venture Capital Model

Abstract

The aim of this paper is to demonstrate the fundamental requirements for building an Islamic Venture Capital. There is an extremely high youth unemployment rate in Islamic Countries. This is due to few numbers of SME companies and inability of governmental sector to offer jobs for all youth. Also Conventional banks finance big companies with long history of operation and refuse to finance new companies. So this new companies do not have any institution to support them. Islamic banks have inability to make a lot an adequate profit and loss sharing (PLS) financing, because the nature of Islamic banks as depository institutions. There is a need for different type of institutions that can play this role and offer PLS financing on a wide scale. The Western practice of VC had some violation to Shariah, so we have to develop a model of venture capital that is fully compliant with the Shariah principles. The paper discuss Venture Capital Investments and its Compatibility with Islamic Principles of Investment. Also we discuss Similarities and difference between Islamic Banks and VC investments to confirm that Islamic bank can’t be used as a replacement of VC investment. Moreover the paper explains the current financing methods Used by VC investments and their compatibility with Shariah Rules. We proposed structure for an Islamic Venture Capital Model. the paper highlighted the challenges facing VC in Islamic countries and providing an approach to overcome these challenges. Finally, the paper explores the importance of governmental support to VC investments in the Islamic countries.