The establishment of innovation hubs that are tailored to developing Sharia-Compliant Start-ups will attract Islamic Venture Capital (VC) firms into Nigeria. Mr. Habeeb Gbenle, Fund Accountant and Sharia Compliance Officer, Capital Trust stated this and provided insights into the “Prospects for the Growth of Islamic Venture Capital in Nigeria” during the Islamic Finance Weekly programme.
According to Mr. Gbenle, this will serve as a platform through which individuals will share ideas and will encourage Islamic VCs and investors to the Nigerian non-interest market.
The Islamic finance expert believed non-interest financial institutions can develop investment models to attract VC investments, and this will be effective through collaborations between non-interest banks and private equity companies. This partnership according to him will lead to the establishment of innovation labs to encourage the activities of Islamic fintech start-ups.
Speaking on the reason why there are no IVCs (Islamic Venture Capital firms) in Africa that can support Sharia Compliant Startups, he said majority of the funding to tech start-ups are from foreign investors.
Giving further perspective, he said statistics showed about 1% funding comes from local investors and this was the reason Africa does not have any IVC at the moment. He cited the case of Nigerian Venture Capital firms whose funding are not domiciled in the country but with foreign investors. He also observed that there are a lot of foreign VC firms that are Africa focused.
He called for support from the government through the Nigeria Sovereign Investment Authority (NSIA) which can play a vital role in leading investment rounds for start-ups in the country, partnering with various local Venture Capital firms focused on the growth of Nigerian start-ups.
Habeeb Gbenle highlighted the following as sectors that Islamic Venture Capital firms can support such as the finance industry which covers Islamic Banking, Fintech, Insurtech, and Mortgage where there is low investment penetration.
Other sectors include lifestyle, education and agriculture which are drivers of economic activities in the nation.
Providing further details of the IVC operations, he said the most used instrument is the Wakala structure, where the Limited Partners appoint the Fund manager to manage the investment on its behalf for a return of management.
In the structure of the relationship between the IVC firms and start-ups businesses use Mudarabah tool, where the VC provide the funding and the start-ups getting the investment serves as Mudarib. Islamic VC is another alternative through which businesses can be financed.
Source: Proshare