Articles

Need funding for a startup in the UK? Don't bother with banks

As published by Alicia Buller in MySalaam.com 29 March 2017

The British Muslim startup landscape is booming. Each passing month sees the launch of new and enterprising businesses, from fine dining to prayer apps to celeb lipsticks. Despite the success of some individual businesses, many entrepreneurs say that gaining access to startup funding remains their biggest challenge.

The UK government has recognised the value of the Islamic economy by setting up directives to promote the industry, but the options for Muslim entrepreneurs at the seed-funding stage remain limited.

“The UK government’s initial policy objective for Islamic finance was to promote financial inclusion,” said Omar Shaikh, Executive Board Member at the UK Islamic Finance Council (UKIFC), “but there remain various gaps in government- and local council–backed financial initiatives which are not sensitive to, or do not understand, the need to provide a Shariah-compliant alternative. For example, we still don’t have Islamic student loans.”

He added that early-stage startup venture capital is not generally the remit of high-street banks, and therefore, “big society vehicles” are the bodies that should be tasked with supporting entrepreneurship.

“But if you look at the support provided to start-ups via institutional frameworks, be it government funding or city councils, they typically have some interest-bearing financing option like soft loans or preference shares,” he continued. “That makes it more difficult to access for Muslims, because there is a considerable aversion towards engaging with interest-based products.”

“In the UK, I’ve come across very few initiatives, but they’re more specific. We’ve seen real estate and other very specific types of funds established, but they are not your traditional VC-type player that goes out to the open market. One or two attempts have been made in the past, but they’ve been very localised.”

According to Shaikh, In the face of limited financing options, entrepreneurs are refinancing their own houses with Home Purchase Plans to get their businesses off the ground. “Select people are refinancing their existing property. That’s the only institutional capital that the Muslim community can get their hands on. They are taking equity out from their property by refinancing it in an Islamic way”.

LOOKING AT CROWDFUNDING OPTIONS AND VC PLAYERS

He also suggests looking at crowdfunding options and approaching all the mainstream VC players who are in the market. “Never give up,” he advises. “You can take equity-based financing, and that complies with Shariah.”

Hassan Waqar is a part-time university student and the founder of Ummah Finance, the UK’s first fintech financial services provider. His is a familiar story for entrepreneurs who want to get into Shariah-compliant businesses. “I’m a Muslim, and I’m launching my own business that mainly targets Muslims across the UK, but I am finding it difficult to gain the funds for my venture as investors are not up to speed on the strength of the industry.”

Waqar added, “It’s up to us as Muslim entrepreneurs to jump these hurdles and make the Islamic economy grow. If we want to succeed, then we need to start putting in the hard work, and results will pour in.”

LACK OF KNOWLEDGE AND AWARENESS OF THE HALAL MARKET IN GENERAL CAN BE A HURDLE FOR STARTUPS

Imran Kausar, founder of London-based halal-food brand Haloodies, agrees that lack of knowledge and awareness of the halal market in general can be a hurdle for Muslim startups: “Muslims are only 5 per cent of the UK population, so [they] can be too niche for some investors seeking rapid scale.”

His advice is for UK companies to work around these challenges together, seeking investors from Muslim countries and tapping capital sources that can understand Shariah rules and appropriately value the Muslim markets.

“Utilising platforms that can enable increased sharing of knowledge, experience and capital would also help; for example, angel investor events, entrepreneur forums and Muslim-focused crowdfunding sites can all play a role.”

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UK’s largest Islamic retail bank opens its first office in Scotland

Al Rayan Bank has opened an office in Glasgow, establishing its presence as the only wholly Sharia compliant retail bank in Scotland and further cementing the country’s reputation as a hub for ethical finance. The office will be officially opened this evening by Al Rayan Bank’s Chief Executive Officer, Sultan Choudhury, and Chief Commercial Officer, Keith Leach, together with key members of the Bank’s executive team.

Cabinet Secretary for Economy, Jobs and Fair Work Keith Brown said: “Al Rayan Bank’s welcome decision to expand its operations into Scotland for the first time highlights the real opportunity offered by ethical finance. This announcement reflects Scotland’s growing profile in ethical finance, building on last year’s successful Global Ethical Finance Forum and the work being done by the Edinburgh-based Ethical Finance Hub. I wish them all the best for a successful future in Scotland.”

Scottish customers will now have access to the UK’s largest range of Islamic retail banking products. This includes Sharia compliant home and property finance products that are tailored to the Scottish market; savings accounts; current accounts and business banking. In addition, the Bank accredits Sharia compliant pensions and investment products, which are provided by third parties.

Although specialising in Islamic finance, Al Rayan Bank is an inclusive bank which welcomes customers of all faiths. Throughout the UK, non-Muslim customers are increasingly choosing it as their bank of choice. The Bank estimates that 94% of all Fixed Term Deposit (FTD) savings customers who have joined the Bank this year were non-Muslim. These customers are attracted, not only by the ethical nature of Islamic finance, but also by Al Rayan Bank’s consistently table topping expected profit rates.

Sultan Choudhury, CEO, Al Rayan Bank, said: “Al Rayan Bank is committed to being an inherent part of the communities that we serve. We have many Scottish customers, who in the past have managed their accounts through our online and telephone banking channels, so it’s with a real sense of pride that we can now welcome existing and new customers to our first permanent office in Scotland.”

Scotland has a proud heritage in ethical finance, and the new office is co-located with the Islamic Finance Council UK (UKIFC), a well-established advisory and developmental body that specialises in promoting and enhancing the global Islamic and ethical finance industry. Omar Shaikh, Board Member, UKIFC, said: “We welcome Al Rayan Bank to our Glasgow offices, and look forward to working in partnership with them. We believe that Al Rayan Bank’s new office is great news for Scotland, as the Bank provides consumers with a competitive, ethical alternative to traditional banking.”

The new Glasgow office forms part of Al Rayan Bank’s national branch and office network, which is strategically located throughout major cities in the UK.

Al Rayan Bank is authorised by the Prudential Regulation Authority, regulated by the Financial Conduct Authority and the Prudential Regulation Authority, and is a member of Financial Services Compensation Scheme.

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