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During her keynote address at the Islamic Venture Capital & Private Equity Conference 2008 launching these guidelines YBhg Dato Dr Nik Ramlah Nik Mahmood, managing director, Securities Commission Malaysia said, 'Venture capital brings profound impact to the economy. It bridges the financing gap where direct bank lending or financing through the debt or equity market is difficult to obtain.
'The unique nature of the venture capital model, which is based on active management, leads to improved corporate governance and an overall alignment of stakeholder interests with that of the management. This then creates significant value above and beyond the use of financial engineering. New companies and industries spawned by venture capitalists for example Apple Computer, Federal Express, Google, IBM have irreversibly changed the way we live and work today'.
Search for 'mega brands'
The clear intention was to promote an Islamic venture capital industry whose aim was not
simply to nurture small businesses but rather to be the catalyst behind the next wave of 'mega brands' too, in the mould of Apple and Google.
Such thinking is certainly ambitious, but judging by the way the balance of global financial and economic power is currently shifting away from the traditional centres of London and New York it may contain an element of realism.
Dato Mahmood then went on to say: 'With the rapid expansion and innovation of Islamic capital market products such as Sukuk, Islamic unit trust funds, Islamic REITs, Islamic ETF and Shariah-compliant listed securities, it is now timely for us to encourage and facilitate the growth of Islamic venture capital as another available asset class in Malaysia's broad range of Islamic products. The development of Islamic venture capital will offer the opportunity for Islamic investors to diversify their portfolios.
'Also, the fact that venture capital does not have perfect correlation with other asset classes such as listed securities allows more opportunity for investors to enhance their
portfolio returns'.
Naturally Dato Mahmood was focused principally on Malaysia but the general concept remains the same for the industry wherever it is based. The speech by Dato Mahmood was by way of a precursor to the publishing of the Guidelines whose two core requirements for Shariah compliant venture capital were identified as being:
- The appointment of a Shariah adviser who provides continuous guidance in ensuring
that amongst others, the proposed investment contract and instrument structures
are Shariah compliant (our emphasis)
- The core activities of the investee company must be Shariah compliant
Dato was clear that these guidelines were absolutely necessary for Malaysia if it was to stand a chance of attracting funds from the GCC, highly enriched with a vastly inflated oil price at the time. Wealth, and therefore venture capital interest, was blossoming in the Middle East and Malaysia did not want to lose out as a recipient of some of these funds.
A new industry
Shortly after this announcement, in July 2008, the first Islamic venture capital Musharaka
Fund was introduced by Malaysia Venture Capital Management with the fund managed by Musharaka Venture Management. Malaysia Venture Capital Management is the venture capital subsidiary of the Ministry of Finance in Malaysia.
Staff
