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Co-Investing- The Best Option!
By A Staff Writer
The need of the hour today is small, medium and large venture capital, which could finance the Muslim entrepreneurs.
World over, when an entrepreneur needs finance for their new venture, there are many banking and non-banking financial institutions. What options do Muslim entrepre-neurs have to raise finance?
If any non-Muslim team of engineers or scientists has an idea about a new product or application, they can easily get venture capital investment. For Muslims very little, if any, risk capital is available.
The major problem Muslim entrepreneurs face is non-availability of suitable financing methods. If the community leaders are truly interested in improving the living standards of Muslim in India, gaining economic independence, regaining their pride and days of glory, they must encourage original discovery, research and invention.
The community should establish number of small, medium and large venture capitals which finance the Muslim entrepreneurs. These venture capitalists loan small businesses the capital they need to expand in exchange for an ownership share in the company. However, the specific rules and regulations governing venture capital can be derived from the basic tenets of Islam and be in accordance with the teachings of the Qur’an.
Venture capital can be cash investment, capital resources, leadership and contacts, economic development, commer-cialiser of innovations, job creator or research magnet. The National Venture Capital Association (NVCA) defines venture capital as money provided by professionals who invest alongside management in young rapidly growing compan-ies that have the potential to develop into significant economic contributors.
Most entrepreneurs would agree with George Bernard Shaw who once wrote, “lack of money is the root of all evil.” Indeed, lack of funding is the first reason for the failure of so many promising ventures. Even those engaged in mature businesses soon realise that not much, if anything happens without money to keep things going.
While no amount of money will make a bad venture successful, for many Muslim businesses, especially the ones that are seriously under performing or financially distressed or are in the early stages before profits become predictable, traditional sources of capital such as banks are simply not acceptable because of the interest component.
So what are the other alternatives available for the Muslim entrepreneurs? Co-investing is the best available option. Those Muslims who have resources should syndicate with professi-onals who have a viable and innovative product to market. This process referred to as co-investing enables ven-ture capitalists to pool expertise, form a unique syndicate and share risk.
These venture capi-talists can cultivate networks comprised of financial institutions, universities, large corporations, entrepreneurial companies and other organisations. These networks and the information flow at their disposal will enable them to reduce many of the risks associated with new enterprise formation and to overcome many of the barriers that hold back innovation.
An excellent example of co-investing is the business format of the Cheliyas community. This prosperous community of Muslims hailing originally from the Palanpur region was earlier in farming and used to supply milch animals to Mumbai. Currently the community has the largest number of hotels, retail teashops, sweat meat soaps and dairies in Mumbai.
The Cheliyas are a group, which believes in simple living, their saving rates are high, they have no extravagant tastes and very often people from the villages put together their savings to start a hotel or restaurant. Cheliyas never approach a bank or a financial institution for a loan, they just put their money together and start a hotel venture. They owned several hotels on the highways in Gujarat. Since the hotels were set up as a loosely knit co-operative venture, additional finance and expertise are often roped in, as the construction got under way.
How is the profit and loss shared? Those who invest only finance, can share in propor-tionate to their investment. Those who offer expertise and time get their share, which is mutually acceptable to all.
Like Cheliyas, other communities can also start co-investing to finance the venture of Muslim entrepreneurs. Few individuals who can pool in their savings can easily form such groups and start the venture capital. Various studies world over have confirmed that the success rate for the small borrowers is very high. The moral strength, confidence and empowerment levels definitely increase among the borrowers who in turn become confident decision makers, investors and mentors for their families.
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