Islamic venture capital ‐ A critical examination

The well‐known modes of raising and mobilizing venture capital in Islam known as mudarabah and musharakah (m&m) in Islamic economics are critically examined. In the form as m&m presently exist, they are pointed out to be pre‐Islamic financing instruments that came into usage in the Islamic economic literature. The inability to realise the extensively relational perspectives of Islamic socio‐economic co‐operation with extensive participation across agents, firms and sectors by means of these instruments, which are essential requirements for the Islamic political economy, is shown to make the instruments fraught with many technical and ethical problems of development financing. The alternative to transform m&m into a more integrated financing instrument of Islamic venture capital is formalised. Empirical evidences are given. Institutional issues are examined in the light of Islamic joint venture financing.