Sharia Funding – A Different Way To Raise Capital

In Fiji, the local landowners are asset rich but cash poor and this prevents many of them from entering business in any serious way. It also generally forces them into
08 Oct 2016 11:00
Sharia Funding – A Different Way To Raise Capital

In Fiji, the local landowners are asset rich but cash poor and this prevents many of them from entering business in any serious way.

It also generally forces them into becoming landlords, leasing their traditionally owned land to someone who does have the financial resources to build a business.

In many cases these people are foreign investors who see the strategic location of the country as providing them with a central place to manufacture products and distribute to developed markets.

In many cases, goods manufactured in Fiji enjoy beneficial rates, such as reduced customs and other duties and marketing support from incentive packages designed by the developed countries as aid.

There are certain limitations on which products the assistance applies to, but it is generally related to the amount of Fiji input and most businesses can achieve these targets.

There are also a great number of opportunities in the tourism industry here. It is in this segment that local indigenous businesses can thrive and quite a number have already done so.


Land availability

There is much iTaukei land that is located in prime tourist spots and would be very easy to lease to companies who have plans to enter the tourism sector.

The issue with this is that by leasing the iTaukei land the traditional landowners commit to a 99 year lease and are paid an annual rental.

There are other benefits, the main one being the premium, a once off payment, and some other payments that TLTB builds into the agreement and not much else.

Rental does give the landowners a steady income and if the property is very successful, the three per cent of gross payments can be good.

But the landowner is still an uninvolved landlord with no control over how the land is developed.


The alternative

There is a better way, but most landowner are locked out because they do not have a lot of cash and they find it difficult to arrange funding from local financial institutions, as they can’t meet the stringent requirements and have no credit history.

So they become landlords earning a rent which is reviewed every five years and is tied to the unimproved capital value of their land.

Over the nearly 100 years of the lease, the increases are lucky if they keep up with inflation.

There is also a component that TLTB build in to take notice of any success the business may have, generally around three percent of the gross turnover.

But It doesn’t matter how successful the business on the leased land, the landowners can do a lot better being part owners.

What the traditional landowners need is a partner who will provide the funding and allow them to use the land as equity to buy a share of the company.


Sharia teachings

Sounds simple, but such partners are very hard to find.

One possibility that is rapidly growing around the world is funding based on the requirements of Sharia teachings,.Sharia teachings are the social, philosophical and religious laws of the Muslim faith.

The Laws prohibit the faithful from charging interest on money lent, money in itself is not a commodity.

Further, the Laws say that is a sin to leave money sitting idle, that it should be used for productive purposes, for making things or creating things that improve people’s lives or add to their well being and happiness.

There is no law that says that you can’t make money from your money, but the money needs to come from activities that the money makes possible.

Working within these parameters, Sharia funding was developed. The funder will find people who have a project and enough equity to take a reasonable share of the company.


Application here

In the case of Fiji, the iTaukei land would generally represent sufficient equity. The funder would then take an equity position (a share) in the business roughly equal to the amount of cash needed to get the business running.

Sharia does not require any security on the part of the partner, the iTaukei land would stay in the hands of the owners but there would be a MOU that the land was equity to purchase shares.

In the event of the failure of the business, no claim could be made on the land for repayment of the debts of the business.

Nor will the landowners be required to pay the debts of the business, except in cases where there is fraud and the landowners actively participated in the fraud.


Sources for Sharia funding

There are many sources for Sharia funding but most are located in the middle-east in oil rich countries such as the UAE, Saudi Arabia, Qatar and the Saharha countries.

But there is a possibility in Malaysia, Indonesia and some of the other predominantly Moslem areas.

The money is generally owned by the rich families or groups of families who operate through investment companies and almost always it is a requirement that the borrower go through a broker.

There are many recognised brokers and they all charge a fee, based on the value of the application, which has to be paid up front and is not refundable if the application is unsuccessful.

Care needs to be taken in the appointment of a broker and it would be wise to seek the advice of the Fiji government before doing so.

The funder will require the borrower to undertake some preparatory work and capital is needed to do this.

Before appointment, get a clear financial statement from the broker on the requirements and possible costs. Sharia funding is a huge business with over USD two trillion in assets in 2009.

Once you are granted Sharia funding, the group will also provide you with management advice and technical assistance.

They will only be paid back the capital they invest in the business if there is a profit so it is in their interests to do everything they can to ensure the success of the venture.

They are generally very experienced in this and can be relied on to produce the best possible advice.

They will expect the local group to be actively involved in the running of the business and to take responsibility.

The investment of Sharia funding is not meant to be a free ride for the borrower and the ability of the borrower to be successful will be a major consideration in the decision to enter the partnership.

In summary, there is no interest, the lender is a share holder in the business, you do have to pay back the invested capital but there is no repayment schedule, there are no mortgages;

This is not the only source of partnership funding and any interested party should look at all the options before deciding to proceed, but there are many examples around the world of the success of Sharia funding.

There are also examples in Fiji of local companies partnering with landowners and some cases of international companies entering partnerships as well.

In all cases the land is used as equity and outside Sharia funding, most of the deals require the land to be mortgaged and the proceeds invested in the partnership.

When this happens the landowner has the liability of mortgage repayments, which they may find difficult to service.

But no matter which method, it is a good option that should be investigated by traditional landowners.
John Ross is a Nadi-based marketing and advertising specialist with a long background in tourism. For feedback on this article, please email him:



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