Showcase capital: Financial inclusion?!

Access to entrepreneurial capital is the key to (stop) the decline, (build) the development and (expand) the diversification of economies, especially emerging markets, which includes all the 57 Muslim countries.

Islamic finance is, in theory, about financial inclusion, equity, and justice, but, in reality, its collateral based finance. Banks, Islamic or conventional, do not back ideas, but mainly companies with established operations, cash flows, etc.

Venture capital, DNA for Silicon Valley in California, backing the likes of Google, Facebook, Alibaba, Twitter, etc., remain mainly a conference presentation topic in and for Muslim countries. For Islamic finance to be a true holistic alternative to conventional finance,  "risk" capital is a must, and leading OIC countries must take a public/private approach. The operations of the VC must be in the Muslim country to attract and teach the younger generations of non-commercial and investment bankers.

Query: What is the point of giving VC firms in Silicon Valley an investment mandate or investing in their portfolio company as the benefit to the Muslim country money is financial returns? Has it created jobs? Has it transferred know-how and technology? Has it sparked an equity culture domestically?

There are technology parks in selected Muslim countries, like Malaysia, UAE, Saudi Arabia, etc. But, are the technology parks in Muslim countries disguised real estate plays, warehouse/distribution, or knock-down kit operations? Do the parks have linkages to indigenous venture capital firms, research universities with international faculty, mentoring program, incubators, stock exchange (listing not based on profits but audited financials), etc.?

Ideas and inclusion

There is a direct link between entrepreneurial capital (supply) and the youth (demand) in the Muslim world, where, its estimated, more than 60% are under 25-30 years and the unemployment/under-employment rate is very high (25-50%). The youth do not want charity, they want the opportunity to "sell and stress test" their ideas/prototypes, much like youths in US or UK, to investors

There is continued chatter, by financial institutions and governments, about financial inclusion, yet, banks, bonds/sukuk, and equity capital markets have not obliged accordingly.

A possible option is crowd funding or People’s capitalism, which is slowly taking root in the Muslim world, with likes of www.shekra.com. But instability, social media restrictions, internet connections, on-line security challenges, etc., in the Muslim world has not allowed it to take-off as it has in, say, the US with likes of Kickstarter.

Showcase capitalism

An entrepreneurial capital spark is needed whose foundation is (1) ethical (one can call it Islamic and/or Halal) that (2) encourages submission of business ideas/prototypes by the locals to a (3) panel of businesspeople with (4) capital to invest immediately (5) based upon five minutes real time due diligence of the presenter, and (6) in return for equity stake and mentoring and (7) all shown on media channel that has reach to the masses.

The concept of "showcase capitalism" is not new, it may be attributed to the "Dragon’s Den" in UK or "Shark Cage" in the US. The obvious take-away from such shows is focusing on linkage between opportunities and funding, but, at sub-surface level, it’s about:

• An avenue for those who may not have access to funds or have exhausted their options, but are (still) passionate about their ideas/prototypes. One of the primary contributors for success for any start-up is the passion of the founders of their products followed by credible research and testing
• It provides a better understanding by entrepreneurs and those watching the program of the "due diligence" questions, including defending financial assumptions of revenue, profits, entry barriers, growth, etc.
• It provides an opportunity for (Islamic) financial institutions and halal industry participants to sponsor as part of their (1) brand building (2) CSR and (3) business/product development/recruiting, etc.
• It provides an understanding of the pulse of local/regional/national thinking and activities on business ideas, akin to a crude indicator index
• The amount sought after, especially in the Muslim world, is not in the millions, but crowd funding amounts of, say, $5000 (15,000 RM) to $50,000 (150,000 RM).
• And sometimes the presenter’s personality, charisma and charm may click with the audience, including companies, even if the presentation is rejected by the panel, hence, a different opportunity for engagement.

Judges

The judges must be business people with understanding of Islamic values and culture, appreciation of Muslim challenges on financial inclusion, respect for their lack of "success", and sensitivity to Muslim humility.

Thus, "hard–edged", the alpha interrogator, may connect on Apprentice and X Factor, but that style disconnects in the Muslim world. In following the teachings of Prophet Muhammad (saw), attitude towards presenters would be dignity over humiliation, teaching over preaching, and empathy over sympathy.

Thus, the judges become partners or angel investors, Musharaka, in the selected ventures. Obviously, the companies will be monitored for progress and development, and, it is hoped, the profit margins on sales revenue will support the growth of the company after the invested money is drawn down.

Prospects

Obviously, there are parameters on products and prototypes, and, much like Islamic finance, where everything is permissible unless expressly prohibited. Thus, many of the presentations will be about (demand-based) innovations in consumer products, from electronics to household items to scents/fragrances to textiles to foods/drinks to wellness products and so on.

There may be great opportunities to hear about halal vaccines, alternative animal based gelatines’, and so on. Furthermore, presentations on inventions requiring funding a prototype, intellectual property issues (patent and trademark), and so on.

Finally, it’s an important opportunity to showcase Muslim country talent nationally, regionally and globally in manner that audiences have become comfortable with over the years.

There are number of follow-up, collateral, and expansive opportunities if there is traction with the proposed program.

Conclusion

The media is the medium carrying a message to the masses. The Muslim world has imported/licensed many programs/shows from the west, and, at one level, there is some culture dilution.

Access to financing in the Muslim world is for the "connected, with collateral and cash flows", i.e., a small minority of the 1.8 billion population.

Ideas (soft collateral) are not defined by status or geographical residence, but by exposure, experimenting, and experience. They produce prototypes and products, where lives may be changed (for the better), where companies becomes industries, and where business-people become role models.

Thus, introducing those with ideas to those with capital on a reality platform (TV) may be just be the spark for financial inclusion in the Muslim world.

We need outside-the-box-thinking as the Muslim world needs build its own box. - October 3, 2013.

* This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insider.