CAIRO (Reuters) - A new web portal launched in Egypt says it is the first crowd funding service in the country that obeys the principles of Islamic finance.
Crowd funding allows large numbers of investors to become shareholders in a project by contributing very small amounts of money, without going through a stock exchange.
“There are banks and financial institutions funding micro-projects and other large projects with more than a million dollars...but the projects that need between $50,000 and $300,000 do not find it,” said Shehab Marzban, one of the founders of shekra.com.
“We are trying to bridge this gap by targeting this segment. The site seeks to combine creative people...and investors willing to pump money into these ideas.”
Entrepreneurs present their ideas to the site’s management team, who have backgrounds in academia, venture capital, information technology and commercial law.
Projects are evaluated before being presented to a network of investors who agree to maintain confidentiality, according to Adel Boseli, co-founder of Shekra.
A joint venture is then built around ideas which are deemed attractive. Projects are required to obey Islamic principles, including bans on the payment of interest and on pure monetary speculation.
Investors take an equity stake in the project and gain returns based on a profit-sharing formula; such formulas are common in Islamic finance, which relies on earnings from real assets rather than pure debt.
Many other crowd funding portals charge a commission once an idea attracts capital, but Shekra works differently by taking an equity stake in the projects.
“We are a partner in the risk. This gives confidence to the investor and idea-creator because of our ongoing interest in them,” Boseli said.
Islamic finance is expected to grow in Egypt after last year’s overthrow of Hosni Mubarak, whose government neglected development of the industry for ideological reasons. Egypt’s new government, led by an Islamist president, aims to expand the industry.
After Shekra grows in Egypt, it will seek to expand into other African and Muslim countries, Boseli added.
Writing by Bernardo Vizcaino; Editing by Andrew Torchia