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Thursday 05, January 2017 by William Mullally

Beaming up to the enterprise

At a time when traditional investments are gathering little more than dust, Islamic enterprises step into the spotlight

 The inaugural Frontier Exchange Islamic Enterprises Roadshow in London could not have come at a better time. While investors struggle to squeeze returns out of the limited options available, the flourishing Islamic enterprises sector is hungry for capital.

Globally, savers and investors have been getting a raw deal. Thanks to secular stagnation, there is little reward for those who prudently put money aside. Those with a glut of savings face low growth and few opportunities. Many investors have the unhappy choice of paying a bank to sit on their money, or taking bigger risks to get better returns.

Islamic investors face even less of a choice. Despite accounting for 25 per cent of the world’s population, less than two per cent of global financial assets are Shari’ah-compliant. With this in mind, it is little wonder that the Islamic enterprises sector is one of the fastest growing asset classes in the investment universe.

PERFECT PARTNERSHIP

“Investment should be about balancing risk and return,” said Meziane Lasfer, Professor of Finance at Cass Business School. “Negative yields mean you pay a bank to keep your money. This will not pay your pension.”

While investors are stumped by a dearth of conventional opportunities, Islamic enterprises have struggled to scrape together any capital. Islamic banks have traditionally favoured real estate investments, leaving many promising enterprises starved of the finance they need to grow. This does, however, leave the field wide open for Islamic investors.

“Finance is not just banking,” said Lasfer. “We have so many systems that allow companies to grow, such as crowdfunding and angel investing. Islamic finance is at a crossroads. It’s growing, but lacks an ecosystem that would allow companies to prosper, investors to find opportunities and companies to raise capital. To do this, we need a forum and a governance system that will protect investors. Finance needs to be merged with companies.”

Islamic enterprises have largely escaped the spotlight, despite rapid evolution over the last four decades. While the Halal food industry has been the posterchild for Islamic business, opportunities in biotech, fintech and green technology have largely gone unpublicised. However, the world is changing.

A WHOLE NEW WORLD

Improved industry infrastructure in the Islamic world, a wider investor base and greater cross-border transactions have all helped polish the opportunities available in the Islamic enterprises sector. The falling oil price has forced the Gulf region to look towards sustainable industries. Meanwhile, London has trumpeted its intention to foster greater global trade as it severs its ties with the EU. Islamic enterprises simply cannot stay out of the spotlight any longer.

According to Iqbal Asaria, Associate at Afkar Consulting, a shift in demographics will nudge western countries into more cross-border investment with Muslim countries boasting youthful populations. “Europe has a problem,” he said. “For any population to stay stable, you need a birth rate of 2.2 per family. In Europe the birth rate is 1.7 per family. There is a shortage of young people coming onto the labour market. Life expectancy is approaching 80 plus. There is a mismatch.

“Europe would need to import 40 million young people to keep its balance. Politically, this is not feasible. It would destroy politics and encourage right wing fascism. The only way is to invest in countries with young people and get a return from it. All Europe’s neighbours are Muslim. Europe will have to accommodate them in some way. We have to benefit from each other.”

Asaria believes that the answer lies beyond conventional finance. Currently, only three per cent of banking and finance goes into production. Only 25 per cent of the population are banked, meaning finance doesn’t touch 75 per cent of the population. “Inequality is growing,” he said. “We need to focus on inclusive growth.”

However, the answer doesn’t lie exclusively with Islamic finance. “Finance should be faith-based: Muslims do not have the monopoly on morality,” said Omar Shaikh, Executive Board Member of the Islamic Finance Council UK.

Shaikh explained that the Islamic Finance Council UK had spent the last six years focussing on ethical finance. This culminated in a partnership between the Islamic Finance Council UK and the Church of Scotland. The joint venture is creating ethical financial services based on shared values.

“Be wary of Halal washing,” warned Shaikh. “Are we using this as a branding exercise? There is an element of creeping cynicism in the industry. People of all backgrounds are looking for a more socially responsible form of finance. Islamic finance has debunked the myth that there is a haircut to the returns of ethical funds.”

CURING CAPITAL

Equity finance is at the heart of all sustainable finance, Islamic or otherwise. And yet enterprises still struggle to attract ethical investors. “Entrepreneurs are often frustrated and held back by the lack of capital available to expand their businesses – this problem is much bigger for those looking for Shari’ah-compliant finance,” said Faizal Karbani, Chief Executive Officer of Simply Ethical.

The Islamic Frontier Exchange Islamic Enterprises Roadshow gave the world a glimpse of what could be achieved if more investors were aware of the opportunities in the Islamic enterprises sector.

Dr. Farid Khan, Chairman of Protein Technologies, reminded the audience that it is an obligation upon Muslims to find a cure for every disease except old age. “There is no disease that Allah has created, except that He also has created its remedy” (Bukhari 7.582).

There is no denying that biotech is a risky investment, with only 25 per cent of companies yielding any returns for their investors. However, the stakes are high. When a company succeeds, not only are the yields impressive but the whole of humanity stands to gain. “The Qur’an teaches that if anyone saved one life, it would be as if he saved all mankind,” said Khan.

Today, institutions such as the UK’s National Health Service are crippled by the rising cost of drugs. Of the $110 billion the pharmaceutical industry spends each year on global research and development, 60 per cent is devoted to testing drugs in clinical trials. Khan, who has discovered drugs for Alzheimer’s, malaria and rare diseases, believes the cost of drugs could be slashed with medication adherence devices, which would make clinical trials more efficient.

Medication compliance monitoring tools guarantee more accurate results, because they ensure that patients take the prescribed drug correctly. Khan is currently aiming to raise funds to trial a new digital solution, which is non-invasive, easy to use and engineered based on patient feedback.

Meanwhile, Matt Chandran, Chief Executive Officer of iGene, argued that while biotech has been myopically focussed on the living, it can also benefit the dead. iGene, which specialises in Advanced Medical Visualisation Technology, pioneered Digital Autopsy. Billed as a compassionate step forwards for those suffering a loss, Digital Autopsy uses radiology to establish a cause of death.

“Autopsies have been an invasive and bloody affair for hundreds of years,” said Matt. “In all countries, ancient methods persist and sadly this method of gross mutilation is the only option.”

iGene harbours ambitions of opening further centres for Digital Autopsy, ensuring that it is available throughout England and Wales. The concept has already garnered praise from international journals as well as famous names such as HRH the Duke of Edinburgh and former UK Prime Minister David Cameron.

“We do not take any investment,” said Chandran. “We would like to know the source. If it’s a Shari’ah-compliant fund, that is really good, but we will be open to conventional finance as long as it’s ethical.”

Chandran’s stance was echoed among all Islamic enterprises seeking capital, whether operating in the food, technology, tourism or fashion space. Where potential is limitless and possibilities are endless, Islamic enterprises cannot afford to be constrained by branding.

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