One of the most popular buzzwords in the government circles these days is either entrepreneurship or empowerment. This is very interesting as our government is waking up to their responsibilities of ensuring that they provide the enabling environment and the required funds that are needed to stimulate employment and economic growth. Kudos to the Lagos state government, under the leadership of Governor, Akinwunmi Ambode for leading the initiative to establish 25 billion naira Lagos state empowerment trust funds.
As reported by the Vanguard newspaper of April 6th 2017, the executive secretary of the funds – Mr Akintunde Oyebode stated that over 1.7 billion naira has been disbursed to 1,400 beneficiaries. It is worthy to note that the fund is not free and it comes with an interest rate of 5% per annum. There are three categories of funds which are: 250,000, 500,000, and 5 Million naira. The first two categories have a payback period of 1 year while the third category is payable over 3 years.
Where are the Muslims
The question is “where are the Muslims in the equation?”, because we are legally and spiritually not allowed to partake in interest except those that are ready to wage war against Allah. But the reality is that these funds are taken from tax payers’ money, and Muslims constitute a larger percentage of the taxpayers in Lagos. Yet, we are fenced out of this opportunity to develop and empower our people because the foundation upon which the funding is laid is an affront to the dictates of Allah.
I would not want to go too much into the legality, or otherwise, of taking interest. As we all know, just like every other issue in Islam, we are very good at sensationalizing it and staying with a certain opinion that may be in our favour, this is the reality of our modern-day Islam. Irrespective of the side of the divide you might be, our proposal would be a win-win solution for all parties that are concerned. Both the Muslims who see no crime in interest and the ones who are not ready to wage war against Allah and the neutrals who sit on the fence – non-Muslims as the case may be.
One of the best options to administer this loan is to use the equity business model. To make things clear and not to bore you with any financial jargons, what this simply implies, is that the fund managers will be a part owner of the business they are providing funds for. As a result, the success or failure of the business will be a shared responsibility of the business owner and the fund manager. In this model, the business owner and the fund manager are either winners or losers as the case may be. On the other hand, with a loan facility model where the business owner is the loser and the fund manager will gain always because the business owner is under the liability of paying the loan advanced to it plus the accrued interest irrespective of the business outcome.
This model is not new, it’s what is being used by venture capitalists to invest in startups or existing businesses that require funds for expansion purposes. Hence, we are not really Islamizing the initiative as those that will oppose this idea would want us to believe. Based on the list of the businesses that the Lagos trust fund is advancing loan to, they all fall into the category of existing businesses who are in need of funds to move to the next level. Therefore, this model is more appropriate and it will create a win-win solution for all concerned.
To put this in the right perspective, I like to give a very simple scenario we can all relate to: A typical SME farm involved in the raising of Boiler birds requires 1.6 Million to raise 1,000 birds at the cost of 1,600 naira per bird. The sales price of each bird based on current market value is 2,000 Naira. At the end of 5 months, the farm will make a profit of 400,000 Naira.
If the equity model is used, the trust fund will invest in the business and can agree on a profit sharing ratio, for example, 30% to 70% for the SME farmer and trust fund respectively. In one year, the farm would have generated 800,000 Naira profit and in three years a total of 2.4 Million will be generated. Based on the agreed sharing ratio the trust fund would have recovered their cost and the company can stand on its own. In the same vein, the trust fund has recovered their investment with profit and ready to move on.
In the loan model, the company would be required to be paying back the loan at the rate of 5% (annually) interest monthly and this will amount to approximately 51,000 naira monthly. The question is “where would be SME farm raise these funds when the gestation period of the birds is 5 months”. This will put pressure on the owner to meet up with the monthly repayment. If for whatever reason the business fails the owner will still be liable to pay the debt, these are some of the realities that make this option not different from what the banks are doing currently which is not sustainable. Therefore, there should be a paradigm shift from the current approach to ensure the initiative records a higher level of success and make it an all-inclusive package for all concerned parties.
The above is just one of many examples, there are many scenarios based on the nature of the business. We have different blueprints that can be applied towards ensuring that we create a win-win solution for all concerned parties. Consequently, the conversation should be how do we influence the system and ensure this type of model is implemented to the benefit of all.
It’s time for us as Muslims to wake up! We must engage our folks in the government and ensure we influence the way our common wealth is being managed for the benefit of all. At TijarahHub.com, we have a blueprint that can be implemented, yes it might still need some fine-tuning, we are open to suggestions and we believe we have the human resource and the capacity within the Muslim community that can make this happen.
Furthermore, we should be looking at how to create our own special funds that can be used to benefit Muslim entrepreneurs, such funds will be devoid of interest and it will benefit us as a community. That is the conversation we should be having, we are open to further suggestions on how this can be taken to the next level. Now it’s time to work the talk!