The application of venture capital strategies tomusharakahfinancing

Aisyah Abdul Rahman, Shifa Mohd Nor and Mohd Fadzli Salmat

Journal of Islamic Accounting and Business Research, 2020, vol. 11, issue 4, 827-844

Abstract: Purpose - This paper aims to explore the strategies used by venture capital (VC) firms in assisting entrepreneurs who have business potential but lack capital. The study also aims to investigate whether the VC strategy can be adopted by Islamic banks throughmusharakahfinancing. Design/methodology/approach - Apart from content analysis, primary data were gathered from several interview sessions with the management of three VC firms and two Islamic banks. Findings - Islamic banks in Malaysia have great potential to offermusharakahfinancing and mitigate risk by adopting the following five VC strategies: method of selection, channelling of funds, monitoring, non-capital assistance and period of investment. We propose the channelling of corporate social responsibility funds formusharakahfinancing as an initial step in applying VC strategy. Research limitations/implications - Given the limited number of willing and eligible respondents in Malaysia, the scope of this study can be widened to a cross-country analysis wheremusharakahfinancing is widely adopted. Practical implications - This study motivates regulatory bodies and Islamic banks to considermusharakahfinancing using the risk monitoring strategy adopted from the VC industry. Originality/value - This study is the first to empirically explore the strategy adopted by VC companies and evaluate whether such a strategy is suitable for the concept ofmusharakahfinancing.

Keywords: Risk; Venture capital; Islamic banks; Musharakah financing (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jiabrp:jiabr-05-2016-0061

DOI: 10.1108/JIABR-05-2016-0061

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