Unlocking Capital for Small Business Owners through Islamic Finance
October 16, 2024
Khaled Sultan
Advisory Board
London Community
Awqaf Foundation
Jerry Koh
Impact Lead
New Power Labs
Sarah Atiq
Founder,
Sarah Atiq Interiors
In our latest New Power Talks, Islamic finance expert Khaled Sultan, advisor to the board of the London Community Awqaf Foundation, and Sarah Atiq, founder of Sarah Atiq Interiors, joined Jerry Koh, New Power Labs’ Impact Lead, to discuss the alternate pathways Islamic finance offers for financing entrepreneurial dreams and meeting the needs of small business owners in Canada.
Capital is similar to blood.
Khaled Sultan shared: “Blood is important to our body, but we don’t live for more blood – we live for a higher purpose. Capital is similar to blood. Islamic finance is not driven by capital alone; it is driven by the social and environmental impact that can be achieved through capital.”
With this metaphor, Khaled emphasizes that while profit is necessary, it is not the ultimate goal of Islamic finance. Just as blood is essential for the body’s functioning but not the reason we live, profit is vital for business sustainability but is not the sole purpose. Islamic finance uses capital as a means to achieve broader, socially meaningful goals—such as community welfare, economic justice, and environmental sustainability. In contrast to conventional finance, which often prioritizes profit maximization, Islamic finance seeks to align economic activities with ethical values, so that business serves a greater purpose beyond financial gain.
Islamic finance presents a values-driven alternative to conventional finance, focusing on partnerships, risk-sharing, and mutual benefit. It offers a gap-filling solution for individuals traditionally overlooked by mainstream finance.
1. Islamic finance centers on sustainable economic growth for everyone.
Khaled explained that Islamic finance is meant to nurture sustainable growth for the community and economy. It aligns economic activities with social values, benefiting everyone, not just investors. Rather than focusing on interest-driven capital flows, Islamic finance offers a framework grounded in ethical partnership and community benefit. It excludes investments in businesses deemed socially detrimental (e.g. alcohol, gambling) and prioritizes inclusion of those traditionally overlooked by conventional banking, such as new immigrants or small-scale entrepreneurs who lack assets or collateral.
Sarah, as a Muslim entrepreneur, highlighted the difficulty of finding financing options that align with her faith and values. Even setting aside these faith-based considerations, she shared that, as a small business owner, traditional loans often pose significant risks, particularly due to the requirement of personal assets as collateral. Sarah emphasized that while she’s eager to grow her business and create meaningful impact, she remains cautious about taking on debt that could jeopardize her family’s financial stability. Islamic finance offers her an alternative – a partnership-based model that mitigates personal risk while upholding her commitment to ethical business practices.
Islamic finance offers Sarah financing products like mudarabah (profit-sharing) or musharakah (joint ventures), which allow her to secure funding without interest or personal asset collateral, supporting her business’s growth while adhering to her ethical principles.
2. Risk and reward are shared between the funder and the entrepreneur.
In the conventional system, funders demand returns regardless of business performance and require personal assets as collateral. Islamic finance’s partnership model aligns the interests of the entrepreneur and the investor. In this model, the investor does not simply lend funds and pass all operational risk onto the entrepreneur; instead, both parties share the risks and rewards of the business. This alignment of interests means that the sustained success of the venture benefits both the entrepreneur and the investor, while any losses are also shared, rather than being solely the responsibility of the entrepreneur. The investor takes on a genuine partnership role, meaning that they have a vested interest in the entrepreneur’s success and are motivated to provide support beyond capital. This can include sharing expertise, networks, and other resources to help the business thrive.
For entrepreneurs like Sarah, this approach is appealing because it allows them to grow their business without the fear of overwhelming debt or the risk of losing personal assets if the business underperforms. The shared risk-reward structure ensures that both the investor and the entrepreneur are equally committed to the venture’s success.
Sarah might use a musharakah agreement, where she and the investor both contribute to the business’s capital and share profits proportionally. If the business struggles, losses are also shared, protecting Sarah from bearing the full brunt of financial setbacks.
3. Islamic finance offers an opportunity for the funder and the entrepreneur to co-create a model that works for both parties.
For many founders, retaining control over their business is a top priority. Islamic finance allows entrepreneurs and investors to negotiate terms that balance the needs of both parties. Khaled explained various strategies, such as joint ventures or selling non-controlling shares, enabling founders to access funds without relinquishing control over their businesses.
Sarah resonated with this point, highlighting her desire to have a say in her business’s direction even while seeking capital for growth. Khaled reassured her that Islamic Finance respects the entrepreneurial vision, creating a support system rather than imposing directives.
Islamic finance is accessible to everyone, not just Muslim entrepreneurs. By prioritizing shared success and social impact over pure profit, Islamic finance opens doors for ethical growth and economic inclusion for diverse entrepreneurs. It offers a funding approach rooted in values, aligning financial outcomes with community impact and sustainable development goals.
4. Islamic finance is accessible to everyone, not just Muslim entrepreneurs.
Islamic finance’s emphasis on shared success, ethical growth, and social impact makes it an inclusive option for diverse entrepreneurs, regardless of religious background. For impact-minded investors, it also offers a more ethical and non-extractive approach, aligning financial returns with meaningful contributions to social and environmental well-being.
Khaled explained that Islamic finance is more advanced and widely available in the UK. For instance, interest-free and Sharia-compliant mortgages have gained popularity among a diverse range of customers. The ethical and inclusive principles underlying Islamic finance make its products appealing and relevant to people from various backgrounds.
Islamic finance, with its emphasis on fairness, transparency, and community benefit, aligns with broader social impact goals and opens doors for entrepreneurs aligned with ethical financing practices and inclusive growth. It also supports the New Power Network’s goal of moving $500 million to underfunded leaders and communities by 2030. By prioritizing shared success, risk-sharing, and social impact, Islamic finance provides a powerful, values-driven tool to unlock capital for those traditionally overlooked, fostering a more equitable and responsive financial system.
Inspired by the Boston Impact Initiative, New Power Labs is working with Khaled Sultan and the London Community Awqaf Foundation to develop and test an Islamic financing fund that unlocks funding for underinvested communities in London, Ontario. This effort is supported by the Ontario Trillium Foundation and Suncor Energy Foundation. If you would like to support the effort, or find out more, please email info@newpowerlabs.org.
