Islamic Finance

Five Reasons Why Entrepreneurs Need To Leverage The Islamic Economy

The focus has shifted beyond simple wealth creation to economies that work to alleviate the social and environmental costs that derive from inequality.
Five Reasons Why Entrepreneurs Need To Leverage The Islamic Economy
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Guest Writer
CEO, IslamicMarkets.com
5 min read
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Cooperation, shared prosperity, and social responsibility: these are some of the key values that underpin the Islamic economy. They aim to support a more equitable society where economic development is focused on long-term inclusive and sustainable value creation. Global trends are beginning to find common ground with this ethics-based, holistic approach to economic development. The focus has shifted beyond simple wealth creation to economies that work to alleviate the social and environmental costs that derive from inequality. Listed below are five reasons why entrepreneurs should make the most of these new demands in the Islamic economy.

1. Islamic impact investing While the UN’s Sustainable Development Goals (SDGs) have presented the world with a coherent framework for tackling the challenges of poverty, social inequality, and environmental risks, the question of funding remains a serious issue. The United Nations Conference on Trade and Development (UNCTAD) have estimated that the funding gap for achieving the 17 goals sits at US$2.5 trillion annually, which far outweighs the investment capacity of many public sectors.

Enter Islamic impact investing. Impact investing intentionally focuses on creating both financial returns and a positive social and environmental impact. Evidently aligned with the values that underpin the Islamic economy, this makes for a natural partnership.

For socially conscious entrepreneurs keen to enter responsible investment circles, the Islamic economy presents many opportunities. While impact investing gains traction with mainstream investors and ecosystems, more interest is being generated in Islamic financial products that sit within this space; including zakat (mandatory almsgiving), sadaqah (charitable giving) and waqf (endowments).

For entrepreneurs, the overlap between charitable giving and investment creates an attractive combination- particularly in areas such as the Middle East and Southeast Asia, where new social impact venture capital funds are being established and young high net worth families are looking to invest their funds in social impact projects aligned with the SDG’s.

2. Tying into the tayyib trend Ethical consumerism is a trend that is currently sweeping the globe. The green economy and industry specific trends such as farm-to-table demonstrate the growing awareness of ethical production of goods and the social and environmental impact of consumerism.

The principle of tayyib lies hand-in-hand with this new mindful trend. In Arabic, tayyib broadly translates to good and wholesome, sharing a similar morals-based meaning with ethical consumerism. As ethical consumerism takes off, Muslim consumers are looking to merge their religious requirements as determined by halal, with ethical and more sustainable production methods which embrace the concept of tayyib.

The opportunities for entrepreneurs lie in tapping into partnerships between the Organization of Islamic Cooperation (OIC) and non-OIC countries to strengthen trade capabilities in this area, and in innovation in supply chain transparency and tracking of products. Marketing and branding will also be an important part of creating awareness for the consumer base that halal and tayyib are not synonymous with food, but rather incorporate a much broader market.

3. The youth demographic creates opportunities Islam encourages trade and commerce; and the growing millennial demographic are creating an emerging middle class which is increasing consumption. By 2030, it is projected that the world’s Muslim population will number 2.2 billion, and 29% of the global youth population will be Muslim.

This rising young group are embracing modernity and the digital age in all its forms, but are also staying true to their faith. Opportunity for entrepreneurs therefore comes from making the most of this new affluent demographic by engaging with a contemporary Islamic consumer that is looking for modern products and services that still conform to Islamic principles.

Additionally, entrepreneurs can benefit from the significant talent pool which has developed from rising numbers of this educated youth. In the MENA region, with the share of youth (aged 15 to 29) reaching over 30% of the population, policymakers are turning towards developing entrepreneurial ecosystems to maximize the benefits of this demographic dividend.

4. Islamic crowdfunding The importance of SMEs, and their positive contribution to the economy through job creation and economic growth, is well known. Despite their positive impact however, funding remains a major sticking point. Fortunately, the creation of crowdfunding has begun a major shift in alleviating this problem. As the World Bank have estimated, up to 344 million people in developing countries could participate in crowdfunding.

With a foundation based on collaborative effort and cooperation, it is no wonder that the concept of crowdfunding appeals to the Islamic economy. Islamic crowdfunding in particular favors projects that are socially responsible and focus on sustainability and inclusion, such as GlobalSadaqah.com, and embrace the Islamic financial concepts of risk sharing and wealth distribution.

Raising capital through financially inclusive means is opening up access to finance to a range of new startups and, importantly, SMEs. For entrepreneurs, this helps drive economic growth whilst also leading to greater social development. Similarly, new opportunities can be found in the Islamic finance ecosystem, developing Shariah-compliant funding for crowdfunding projects.

5. The rise of Muslim millennial travelers Thanks to a wealthy and increasingly interconnected middle class, this sector of the Islamic economy is broadening its scope and offers the potential to expand beyond Muslim-majority countries.

The growing appeal for Shariah-compliant hotels, transportation and food comes from the new wave of health-conscious and family-oriented travelers. These tourists share a desire for authentic and family-friendly environments, and are seeking travel free from overconsumption and excessive indulgence.

With a projected market value of US$243 billion by 2021, the unmet demands of halal travel for this blossoming consumer base therefore provides ample opportunity for entrepreneurs targeting wealthy, health-conscious travelers across the globe.

Related: The Islamic Economy Needs To Find Routes To Connect Innovation With Financing

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