Qardus opens Islamic finance to small businesses for the first time

Qardus, the UK’s first Islamic small business finance platform, is hoping to raise funds worth up to £ 2.5 million in the coming year.

The crowdfunding platform, which was launched last July, offers Sharia-compliant Islamic funding to any small business, whether Muslim or not.

Muslim-owned SMEs are an underserved market in the UK as Sharia law bans them from borrowing or paying interest but still needs to grow.

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An estimated 3.3 million Muslims live in the UK. Many of them have to expand their small businesses, but Sharia law prohibits borrowing from banks on the main street. (The word “Sharia” means a trodden path to the water, although in this case it means religious legislation.)

To date, Qardus has arranged Islamic funding worth nearly £ 320,000 for five small business owners, including a real estate company, chemist and dental office.

Businesses can arrange between £ 25,000 and £ 200,000 to pay back over a period of up to 36 months.

Around 750 individual investors have registered for the Qardus crowdfunding platform.

Just as Muslim-owned micro-businesses can’t really turn to Shari’ah-compliant funding – most major Islamic finance banks only deal with big-ticket real estate deals – there aren’t many places Muslim investors can put their money into in the halal way .

Hassan Hence, founder of Qardus, said; “Because we’re in such a low-interest environment, investors look elsewhere for returns. They like our returns and see us as a unique offering and a separate asset class. Our product is also attractive to non-Muslim investors. “

However, since Qardus cannot lend money per se, its unsecured funding works in a different way known as Murabaha.

For example, permitted under Sharia law, a Qardus SPV would buy a precious metal such as tin or steel worth £ 100,000 and then sell it to the small business for £ 120,000. Qardus then acts as the broker for the small business to sell the base metals immediately and provide them with the funds. Qardus will charge up to 7 percent of this upfront fee and the £ 120,000 deferred payment will be paid out by the small business to investors over the funding period.

From the business owner’s point of view, it appears to be a hassle-free – but critically Shariah-compliant – funding facility once the documents are signed. The money will be transferred to the SME’s bank account within a few days after the offer has been fully funded.

Hassan Hence, founder of Qardus, said, “Islamic finance is a dense issue and more needs to be done to disseminate information in an easily understandable way. We want every small business to understand the basic essence of Islamic finance. “

Promote a social good

Crucially, Islamic finance can only be used by certain types of small businesses that care for people or promote a social good.

Certain companies are excluded from Islamic funding, such as companies involved in alcohol, pork, gambling or other non-Islamic activities. This also includes mass entertainment such as music, movies or TV shows.

However, Islamic funding is available to any small business with a social agenda – such as a coffee bar run by ex-homeless people or a catering employment agency that only has ex-prisoners on their books – and their terms could be more attractive, for example. than the new Recovery Loan Scheme, which charges interest of up to 15 percent.

Therefore, said: “Our platform is open to SMEs that meet the criteria for Sharia screening but are not required to be owned by Muslims. We believe social impact is in our DNA. Social impact must come before anything else. How can we give back to the community we serve? “

In fact, Qardus has spoken to several non-Muslim-owned but socially progressive corporations.

Additionally, Qardus believes it can help micro businesses become more ethical and social in the way they serve. Unlike enterprise-sized companies, micro-businesses have neither the time nor resources to devote themselves to social welfare or sustainability.

It may not come as a surprise that Qardus is in talks with institutional investors, as socially conscious Islamic finance meets many criteria when it comes to company-sized ESG commitments.

Qardus was supported by early stage investors Founders Factory and SFC Capital. Hence, the crowdfunding platform developed under the Founders Factory program after doing his PhD in Malaysia, where half of the economy is run on the basis of Sharia law.

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