Islamic Venture Capital in Malaysia: Operation and Challenges

Sharifah Faigah Syed Alwi, Mohamad Nizam Jaafar
Arshad Ayub Graduate Business School, Universiti Teknologi MARA

Ismah Osman, Amirul Afif Muhamat, Ruhaini Muda
Faculty of Business Management, Universiti Teknologi MARA

Abdul Hadi Md Akhir
Hong Leong Bank Berhad


Operational practices of Islamic venture capital and conventional venture capital in Malaysia differ from one another, specifically with regards to their investment activities where the investment of Islamic venture capital is restricted to Shariah compliant funds and businesses only. As at 2018, there are 64 Venture Capital Management Corporations (VCMC) registered in Malaysia. Unfortunately, in Malaysia, there are still very few of Islamic Venture Capital Management Corporations (IVCMC) that are established. Globally, Islamic venture capital seems to be quite relatively new as compared to conventional venture capital. Accordingly, this study aims to highlight the real concept and operation of Islamic venture capital in Malaysia. This research also intends to identify the challenges faced by the IVCMC for survival among the conventional VCMC in Malaysia. In addition, this study adopted qualitative method where the evidence on the real concept, operation and challenges of Islamic venture capital companies are gathered from the practice of the only two of IVCMCs in Malaysia which are willing to participate in this research. Apparently, it is found that Islamic venture capital can be considered as a participatory finance-based paradigm, established on profit-sharing principles namely in mudarabah (profit sharing) and musyarakah (profit and loss sharing) contracts, to ensure a justly inclusive economic growth. However, the main challenge for its growth is a lack of awareness among entrepreneurs with regards to the existence and function of IVCMC in providing investment and financial services. More importantly, the Malaysian government or private sector need to increase the funding of IVCMC to expand the growth so that Malaysia can emerge to be as one of the centers of excellence for Islamic venture capital.

Keywords: Islamic venture capital, Operation, Challenges