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Islamic private equity: what is new?

Author

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  • Yousfi, Ouidad

Abstract

The current paper analyzes similarities and differences between conventional and Islamic private equity (PE). Despite the financial subprime crisis and the lack of liquidities in financial markets, PE still play an important role in financing growing unlisted firms all over the world. However, conventional PE and Islamic PE display different features. First, Islamic PE funds have less investments opportunities and cannot diversify their projects across activities and sectors mainly because of the Shari’ah compliance criterion. For instance, the PE funds is composed of the managers team, the Shari’ah supervision board SSB and the supervision compliance officer SCO. Second, the choice of PE partnerships depends on the target’s performance, the Islamic scholars’ school and the religiosity degree of the country where they operate, and the SSB policy. Third, they bear varied and different risks from their conventional counterparts. As a consequence, Islamic PE financing is expensive and still not very competitive. Fourth, to overcome and mitigate risks, conventional PE funds can issue convertible securities and abandon prematurely bad quality projects. In contrast, Islamic PE funds are actively involved in the project only in specific cases and cannot exit prematurely the target but can sell gradually their stocks to cover their equity. Finally, financial modes vary according to the degree of involvement of the PE fund in the project and the pre-agreed arrangements between the entrepreneur and the PE fund.

Suggested Citation

  • Yousfi, Ouidad, 2011. "Islamic private equity: what is new?," MPRA Paper 35952, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:35952
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    File URL: https://mpra.ub.uni-muenchen.de/35952/1/MPRA_paper_35952.pdf
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Zaid Al-Aifari & Monzer Kahf, 2021. "Venture Capital Investment: Challenges and Potential Solutions استثمار رأس المال المُخاطر : التحديات والحلول," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 34(2), pages 3-18, July.
    2. repec:ipg:wpaper:2014-604 is not listed on IDEAS
    3. repec:ipg:wpaper:2014-566 is not listed on IDEAS
    4. repec:ipg:wpaper:2014-581 is not listed on IDEAS
    5. repec:ipg:wpaper:2014-531 is not listed on IDEAS
    6. repec:ipg:wpaper:2014-599 is not listed on IDEAS
    7. repec:ipg:wpaper:2014-505 is not listed on IDEAS

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    More about this item

    Keywords

    Islamic Private Equity; venture capital; PLS;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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