Would you ever imagine an investor giving you an amount X to participate at a percentage of your lifelong income?
This is what the Thrust Fund suggests:
"Here's how it works:
Thrust Funders learn about Entrepreneurs.
When the Funder sees an Entrepreneur of interest, she or he submits an inquiry to that Entrepreneur and coordinates a time and manner to discuss passions, plans, and pursuits.
When a Thrust Funder decides to support an Entrepreneur, she or he may negotiate exactly what that support will look like. "
The sample contract is shown here:
The investment is done one to one, no diversification like usually with a fund concept. The current entrepreneurs seeking finance are shown here:
Could such a model work in the Muslim world? Any Sharia restrictions to be imposed for the sake of justice?
Let's start thinking!
Michael Saleh Gassner
An article in the Financial Times, has discussed the legal issues surrounding to an eventual Event of Default of the Nakheel Sukuk, which can be read here:
Some comments came afterwards referring to that piece, e.g. on FT Alphaville:
Claiming that because of Sharia law in the UAE there is uncertainty regarding burden sharing.
Such a claim is an error. While the Sukuk was structured to comply with Sharia the various Agreements are either governed by English law or UAE law.
Therefore it is crucial to see how assets could be seized under UAE law not under Sharia law: A nice summary of the dispute resolution in the UAE is free for download by the law firm Afridi and Angell:
some background on the standstill:
Sukuk prospectus of the related Nakheel entity:
"Risks Relating to the Co-Obligors and the Co-Obligor Group Strategy
The growth strategy of the Co-Obligor Group is based on certain assumptions relating to, inter alia,
economic conditions, market for real estate and demographic conditions in Dubai. [...] This could, for example, have an impact on the rental income, sales proceeds or other income (such as management fees) available to the Co-Obligor Group and the value of its projects, which could affect its ability to make payments under he Transaction Documents."
and the issue of implicit sovereign support was nicely discussed in a blog:
The rational behind is explained by a rating agency here in 2007:
"from its parent also benefited from strong implicit government support."
"President Barack Obama, who met card executives at the White House on April 23, says customers deserve protection from unfair practices. "
He actually is a long standing opponent of credit cards offering repayment in installments. A short search in Google proofs he is looking into the issue far before his election, e.g. in 2007:
"Democrat Barack Obama called for new restrictions on "predatory" credit card companies he says deceive consumers into piling up massive debt they have little hope of repaying."
In spite of cheaper funding, the card companies continue to charge high justifying it with the write offs:
Just reading an article how much the UAE economy needs the small and medium sized companies and how much difficulties they face to be financed by banks:
One issue I missed in this article:
Not a word mentions the role of cooperative / mutual banks or the saving & loans; both financial institutions, which are non profit by its bylaws but dedicated to their members or region. This sector has about 50 % of the total banks balance sheet in my home country Germany, where small and medium sized companies are the backbone of the economy.
So, what is missing in the GCC desperately is setting up cooperative banks and regional saving banks - both can be done Islamically.
I just published an article with the Dow Jones Islamic Market Indexes Newsletter, giving an overview about the lines of arguments regarding performance and ethical screens, be it Islamic or Sustainability and what empiricial findings have been published.
It is claimed by critics that the reduction of the universe through ethical screens shall reduce the performance, likewise corporate social responsiblity comes against a cost. Similar counterarguments have been raised regarding Islamic screening criteria.
Bank Sarasin published a study doing own research with partners and reviewing published empirical analyses in the literature. It shows that there is no negative impact on performance. My review of empirical analyses in regard to Islamic finance concluded the same and all publications let conclude that ethical screens add value by way of risk management. An example is the debt limitation of the Sharia tolerance criteria.
Ethical screens may therefore improve the investment decision process and more research shall determine, which factors add value to the portfolio and therefore form part of a professional process.
Please see my explanation to the recent Sukuk debate layed out in two articles.
Michael Saleh Gassner
Edward Russell-Walling wrote in The Banker about an investment bank called Exotix, which y tackles the Yemeni frontier for investment, you can find the entire text here:
What is remarkable on this article from an Islamic finance perspective? A few issues:
1. It shows how investment banks can operate in emerging or so-called frontier markets:
"Exotix specialises in what are known these days as ‘frontier’ markets, particularly in Africa, in generally off-limits jurisdictions such as Cuba and North Korea, in the wilder corners of Latin America (which these days includes Argentina) and the Balkans. It began in 1999 as a distressed debt specialist and has been putting the knowledge gleaned from that exacting trade to wider use."
2. The frontier market attract more foreign investment and new entities are being set up:
"Since 2005, Exotix has developed an equity platform. “This is a one-stop shop, substantially a stockbroking business, for international investors looking to invest in sub-Saharan Africa,” explains Exotix CEO Peter Bartlett.
Recently I came across the website www.kiva.org - which happened to be an Internet based charity. What they do? They connect those people who need a microfinance with those small scale donors previously not accessible. It brings together people willing to lend a 25 $ with those who need a 500 $ for a cow, and syndicates it with different lenders globally. A fascinating technology, showing where you contribute and could make difference.
My belief is, that this peer to peer concept using institutional infrastructure for distribution but relying on a high number of small donors, has a great future. People have confidence to make a difference.
Have a look and think about, how this platform could be used in other ways as well!
Once more: www.kiva.org