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Shekra Blends Crowdfunding with Islamic Finance
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Shekra Blends Crowdfunding with Islamic Finance

At first glance, Islamic finance and crowdfunding have little in common. One takes its mission from the Qur’an, a holy book revealed in the seventh century, and the other only became possible with widespread use of social media. 

Dig a little deeper, however, and you will find enough similarities for Islamic finance and crowdfunding to work in tandem. The founders of Shekra, a Shariah-compliant crowdfunding platform that launched late last year, think the two complement each other quite well.


Indeed, while obstacles remain, there is much to like about the prospects of crowdfunding in the Arab world. Citizens of several Middle Eastern countries cast away despotic presidents, replacing them with religiously-minded politicians; current economic conditions and demographics can spur entrepreneurship; and tenets of Islamic finance may mesh just enough with crowdfunding for the two to supplement one another.

Islamic Finance, An Overview

While it did not get its start until the second half of the 20th century, Islamic finance is, indeed, based on the principles enshrined in Islamic law, or Shariah. In practice, that means lenders cannot collect interest (known as riba) of any kind, nor are they allowed to invest in businesses considered to be unlawful (haram) under Shariah law — casinos or bars, for example; non-Muslims are permitted to invest.

When allowed to oversimplify, Rushdi Siddiqi, global head of Islamic finance & OIC countries for Thomson Reuters and a board member of Shekra, describes the different kinds of Shariah-compliant banking as a three-legged table. One leg, he told, represents ethical investing, another commercial banking, and the third takaful, a form of mutual insurance.

While the Islamic finance industry as a whole is estimated to be over $1 trillion, little of that money goes to the man on the street, Siddiqi said.

“There is a bias towards real estate and equity in compliant [established companies], you also have some commodity funds, and so on,” he explained. “But in the area of venture capital, which is what the essence of Islamic finance is supposed to be about — partnership and risk-sharing — there is very little [activity].”

Investors in the region tend to be risk-averse and short-term oriented; rarely, Siddiqi noted, does one hear of money flowing from Muslim countries to Silicon Valley startups. That’s particularly bad news for entrepreneurs and small businesses back home.

Young people in most Arab countries are struggling to find jobs — in fact, the region has the world’s highest youth unemployment rate at around 25 percent. Many of the unemployed are well educated, and some have studied abroad. They proved their mettle in the fight against dictators of old, but now find it difficult to finance their startup ideas.

Shariah-compliant crowdfunding platforms, Siddiqi believes, can help to fill that gap.

Shekra's Crowdfunding Model

Shekra is one such platform that launched last November in Egypt. The portal operates as a marketplace for investors and promising startups to find each other, co-founders Shehab Marzban and Adel Boseli explained.

The process works like this: startups that apply for funding are evaluated and given a Shekra Score. The score is based on a number of factors, including the startup's stage, business model, clarity of purpose, and market potential (of course, it must also be Shariah-compliant). The companies that meet the minimum score but need to improve in certain categories receive training from the platform’s experts.

When they are ready, startups pitch their ideas to Shekra’s closed network of investors. At the same time, they launch a public campaign to promote their idea on social networks. The more buzz a startup receives, the more confident investors can be in supporting it. 

For the foreseeable future, Shekra will keep its investor network closed to ensure that it’s compliant with securities laws, and to show proof of concept.

“Our goal, of course, is to go for a much bigger crowd, and to open up over time, but this can only happen if it’s legally possible,” Marzban explained. Currently, Shekra has around 70 investors, and the co-founders said they are working out a partnership with one of the biggest business associations in Egypt to bring in several hundred others into the network. 

Instead of charging companies a percentage of the money raised, Shekra takes an equity stake in the startups, which fits well with the principle of risk-sharing in Islamic finance. It also takes a “minimal” fee for services provided. 

Challenges and Outlook

Aside from the lack of a regulatory structure for crowdfunding, Shekra and other Middle Eastern platforms must overcome several challenges before they can become successful. For one, online payment processing firms have yet to become prevalent. And internet penetration, while growing rapidly, is still relatively low. More importantly, the region lacks a developed startup financing ecosystem, and Islamic finance is not very well established outside Malaysia and certain Gulf countries.

Shekra’s creators believe this makes it even more important to start the company off slowly and incrementally build on successes. The Muslim community and the Arab diaspora across the world can help with the funding, which is why the Shekra team encourages startups to create business plans in both Arabic and English. (Yomken, another crowdfunding platform in Egypt, also operates its site in English to appeal to the international community, as does Aflamnah.) And while Islamic finance is only beginning to take off in Egypt (and other Middle Eastern nations), the ruling Freedom and Justice Party is much more receptive to it than ex-president Husni Mubarak was.

“Shekra” can be translated as “partnership in an idea,” which is key to both Islamic finance and crowdfunding. The platform’s co-founders are hoping that more and more people notice the potential for the two financing methods to work together.

There are signs that this is happening already. At a recent conference on SME financing in Dubai, economist Nasser Saidi proposed crowdfunding as a way to “encourage wider investor interest… [and] help meet increased demand.”

Slowly but surely, expect to see more crowdfunding platforms take root in the Middle East.

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