Private equity – be it Islamic or otherwise – is not dissimilar to the perfect marriage. Both parties enter into an agreement for better or for worse and stick through it. More popularly known as venture capital in the western world, private equity is slated to be the new frontier for Islamic finance.
Ironic, because it is essentially the most fundamental form of partnership in the universe of Shariah financing. Should this sector kick off, it will further boost the real economy by promoting profit and loss sharing partnerships and asset-based trade finance contracts spanning murabahah, Ijarah and salam.
However, despite this, there is still a little exposure to the sector, with data showing that there are currently only an estimated 608 Islamic funds globally and across all asset classes, with equity exposure taking up a big chunk at 52%, while private equity and real estate make up a mere 18%, followed by money market, balanced and fixed income funds at 13%, 8% and 6%, respectively. In terms of value, it is estimated that the global Islamic private equity market is currently worth US$2.2 billion, a far cry from the US$40 billion anticipated by 2011.
