Islamic Finance and Venture Capital: A Practical Approach

Saqib Rashid

in Islamic Perspectives on Wealth Creation

Published by Edinburgh University Press

Published in print May 2005 | ISBN: 9780748621002
Published online March 2012 | e-ISBN: 9780748653096 | DOI:
Islamic Finance and Venture Capital: A Practical Approach

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This chapter aims to increase awareness of the prevailing US-based VC (venture capital) model as an acceptable Islamic vehicle by providing a critical analysis of this mode of financing in the context of Islamic economic principles. In doing so, it evaluates the underpinning legal contract between the investor and entrepreneur, where the distinctions between the VC and Islamic finance are apparent. Of major concern in the chapter is the issue of common versus preferred stock. While the former is accepted in Islamic finance circles, the latter is categorically rejected, since it provides one investor with a liquidity preference over another. The chapter argues that establishing a thriving venture capital industry is crucial not only for further evolution of the Islamic finance industry, but also for the long-term development of ailing economies in the Muslim World.

Keywords: venture capital; financing; Islamic finance; common stock; preferred stock

Chapter.  9448 words. 

Subjects: Society and Culture

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