Nur Advisors Works On Novel Islamic Micro VC Fund

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Jun 2007
Kuala Lumpur, Malaysia, June, 27 2007 - Between wealth management and microfinance, Islamic banking has left unserved a vast swathe of small Muslim entrepreneurs who urgently need funds to develop their businesses.

It is a sector that Chicago-based Nur Advisors LLC aims to help with the  creation of Venture Philanthropy Funds, which intends to direct investment  initially to up-and-coming businesses in Pakistan and Egypt, Kavilash Chawla, a  principal at the firm, told Dow Jones Newswires in a recent interview.

 Ultimately, it hopes to expand the fund to aid entrepreneurs in the likes of  Muslim-dominated southern Thailand, Indonesia and Malaysia.

 Hefty oil reserves have made some Muslim nations very wealthy, particularly  some of the Gulf states, very wealthy. But many of the world's 1.5 billion  Muslims are still very poor, often for want of capital to help themselves.

 Venture capital, however, hasn't been common in Muslim communities in the past  because of the low level of entrepreneurship, particularly in the Middle East,  and because the few would-be business leaders typically approached their social  networks for funds. Both those trends are now changing.

 Islam's stress on social equity requires Muslims to make charitable  contributions when they can, and many wealthy non-Muslims are also increasingly  keen to provide socially responsible support to impoverished communities.

 "The only way you are really going to effectively battle poverty is through job  creation and profit at the end of the day. It has got to be sustainable and  profit-generating or it's not going to work," Chawla said. "I think most people  want to help, they want to do good but it's got to be (in a way that is) viable  and sustainable."

 The fund - which Chawla believes is the first of its kind - will take equity  stakes in existing or planned small businesses where the recipients have a  proven record of entrepreneurship.

 "It's micro venture capital but with exit strategies that, as they (the

 entrepreneurs) become more successful, they slowly buy back the equity from the  fund which then, again, allows the fund to invest in other businesses," he  said.

 Structured according to Islamic law, the process would be structured as a  diminishing musharakah, or diminishing partnership. The firm will seek a formal  approval for the fund as Shariah-compliant once the details have been ironed  out.

 Socially Responsible Financing

 The initial fund contributors won't reap any profit from the product, which Nur  Advisors hopes will be investing or be close to investing cash in Pakistan and  Egypt by Jan. 1, 2008. It will start to assess the prospects for developing the  fund in other countries in late August or early September.

 Nur Advisors, which advises energy firms and financial investors on both  Islamic and non-Islamic funding and risk mitigation, is initially looking to  create two funds of $500,000-$1 million each.

 The company will place about $200,000-$300,000 into the Pakistan fund and has  also received expressions of interest from around 15 Muslim and non-Muslim high  net worth individuals in the U.S. to contribute.

 "I think the appeal for the non-Muslims is (that) it's a socially responsible  avenue for them," he said. "And I think that especially after Sept. 11 (2001  terror attacks on the U.S.), there is a realization that there are  ramifications for the U.S. in what happens elsewhere. What happens in northwest  Pakistan affects northwest Iowa," he said.

 Nur Advisors is currently assessing where in Pakistan would be best suited as  initial targets for the fund. Infrastructure constraints and the importance of  social networks mean investments will be targeted at communities rather than  sprinkled widely.

 Nur Advisors won't contribute to the Egyptian fund, which is being set up by an  Egyptian financial institution and several local wealthy families and which  will target businesses in Cairo.

 "We are hoping once we have got a small model up and running and have some  success with a few identified communities in Pakistan, then we can look to  expand it across different communities and then raise some funds from some high  net worth individuals within the Gulf Cooperation Council," he said.

 The idea for the fund was born out of observations the firm made when the U.S.  firm raised funds to help the victims of the October 2005 earthquake in  Kashmir.

 "Relief was not what they needed, and rehabilitation would not have been the  most effective mechanism of utilizing funds towards helping people in the  region," he said.

 Although there were many viable businesses in the region, the loss of  collateral and other assets in the earthquake made it difficult for owners to  approach regular banks to fund the rebuilding of their firms. Microfinance  loans were often too small to be of help, and grants and aid were often not  targeted specifically enough, Chawla said.

 Microfinance loans in Pakistan are typically for PKR30,000-PKR40,000  ($495-$660), so investments from the fund will be larger than that. There won't  be an upper limit on the investments.

It is a sector that Chicago-based Nur Advisors LLC aims to help with the  creation of Venture Philanthropy Funds, which intends to direct investment  initially to up-and-coming businesses in Pakistan and Egypt, Kavilash Chawla, a  principal at the firm, told Dow Jones Newswires in a recent interview.

 Ultimately, it hopes to expand the fund to aid entrepreneurs in the likes of  Muslim-dominated southern Thailand, Indonesia and Malaysia.

 Hefty oil reserves have made some Muslim nations very wealthy, particularly  some of the Gulf states, very wealthy. But many of the world's 1.5 billion  Muslims are still very poor, often for want of capital to help themselves.

 Venture capital, however, hasn't been common in Muslim communities in the past  because of the low level of entrepreneurship, particularly in the Middle East,  and because the few would-be business leaders typically approached their social  networks for funds. Both those trends are now changing.

 Islam's stress on social equity requires Muslims to make charitable  contributions when they can, and many wealthy non-Muslims are also increasingly  keen to provide socially responsible support to impoverished communities.

 "The only way you are really going to effectively battle poverty is through job  creation and profit at the end of the day. It has got to be sustainable and  profit-generating or it's not going to work," Chawla said. "I think most people  want to help, they want to do good but it's got to be (in a way that is) viable  and sustainable."

 The fund - which Chawla believes is the first of its kind - will take equity  stakes in existing or planned small businesses where the recipients have a  proven record of entrepreneurship.

 "It's micro venture capital but with exit strategies that, as they (the

 entrepreneurs) become more successful, they slowly buy back the equity from the  fund which then, again, allows the fund to invest in other businesses," he  said.

 Structured according to Islamic law, the process would be structured as a  diminishing musharakah, or diminishing partnership. The firm will seek a formal  approval for the fund as Shariah-compliant once the details have been ironed  out.

 Socially Responsible Financing

 The initial fund contributors won't reap any profit from the product, which Nur  Advisors hopes will be investing or be close to investing cash in Pakistan and  Egypt by Jan. 1, 2008. It will start to assess the prospects for developing the  fund in other countries in late August or early September.

 Nur Advisors, which advises energy firms and financial investors on both  Islamic and non-Islamic funding and risk mitigation, is initially looking to  create two funds of $500,000-$1 million each.

 The company will place about $200,000-$300,000 into the Pakistan fund and has  also received expressions of interest from around 15 Muslim and non-Muslim high  net worth individuals in the U.S. to contribute.

 "I think the appeal for the non-Muslims is (that) it's a socially responsible  avenue for them," he said. "And I think that especially after Sept. 11 (2001  terror attacks on the U.S.), there is a realization that there are  ramifications for the U.S. in what happens elsewhere. What happens in northwest  Pakistan affects northwest Iowa," he said.

 Nur Advisors is currently assessing where in Pakistan would be best suited as  initial targets for the fund. Infrastructure constraints and the importance of  social networks mean investments will be targeted at communities rather than  sprinkled widely.

 Nur Advisors won't contribute to the Egyptian fund, which is being set up by an  Egyptian financial institution and several local wealthy families and which  will target businesses in Cairo.

 "We are hoping once we have got a small model up and running and have some  success with a few identified communities in Pakistan, then we can look to  expand it across different communities and then raise some funds from some high  net worth individuals within the Gulf Cooperation Council," he said.

 The idea for the fund was born out of observations the firm made when the U.S.  firm raised funds to help the victims of the October 2005 earthquake in  Kashmir.

 "Relief was not what they needed, and rehabilitation would not have been the  most effective mechanism of utilizing funds towards helping people in the  region," he said.

 Although there were many viable businesses in the region, the loss of  collateral and other assets in the earthquake made it difficult for owners to  approach regular banks to fund the rebuilding of their firms. Microfinance  loans were often too small to be of help, and grants and aid were often not  targeted specifically enough, Chawla said.

 Microfinance loans in Pakistan are typically for PKR30,000-PKR40,000  ($495-$660), so investments from the fund will be larger than that. There won't  be an upper limit on the investments.



 

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