Jaluum Herberts
Many of you that know me and follow me online know that I have stake in one of Fintechs around town called BORO BORO that aims at offering affordable working capital to small businesses and individuals.
Part of the reason I started this Fintech was because of my own hustle as an entrepreneur raising working capital time and time again.
As an entrepreneur you’re always on the lookout for the most affordable source of capital you can get so this has taken me on a journey of looking at various options across board even those that aren’t available locally in the country (Uganda).
Any local entrepreneur who has tried sourcing capital will tell you the cost of money in Uganda is so expensive.
The demands of getting it so stringent that most people can’t actually qualify to get it.
I have raised capital through crowdfunding, I have gotten a few grants and private individual capital however I have never gotten credit from the bank or what many of you call loans.
My bankers on several occasions have interested me with the idea of getting credit to help us in growing the business but I have on several occasions declined the offer.
The closest I have gone is getting a credit card that I haven’t even picked from the bank two years later.
Not because I don’t need money but because of the cost of getting the money vis-a-vis our current level of growth.
I am also the kind that thinks one shouldn’t borrow simply because there’s a willing lender especially if the money is for business.
The problem is, most of our banks are commercial banks which I personally don’t believe are good for business in-terms of credit for business.We have very few investment/development banks like Uganda Development bank and East African Development bank but unfortunately they’re not designed to help SMEs due to the credit minimums they offer.
A lot of the SMEs we have around can’t consume the minimum monies on offer by these banks.
Save for the investment/development banks, a lot of the money on offer from many commercial banks is so expensive and not patient some thing that may work against startups because they need time to grow and be in a position to make money and be able to pay back the loans.
The high level of uncertainty in the startup world also makes it hard for commercial banks to take the risk and also for startups to recover from any slight financial setbacks.
This forced me personally to cast the net wider in search for alternative reasonable financing options and that’s how I landed on Islamic banking.
Now Islamic banking is a whole new concept on this side world and not very many people know about it but it’s popular in the Arabic world.
It’s built around the doctrines of the Islamic faith and the Sharia as the legal framework of operation of the Islamic faith/religion.
For those who don’t know Sharia, it’s the law that governs Islamic faith and it’s derived from the doctrines or the Quran which is the holy book of the Islamic faith/religion.
The Sharia is built around the teachings of the Quran and with Islamic banking riba or interest being at the center of it all.
Based on Islamic teaching, riba (interest) as we know it in the western system of financing is not permitted. So Islamic financing looks at availing money for production while going round the question of interest.
It also bars financing in line with prohibited practices in the Islamic faith like the sell of alcohol, gambling e.t.c meaning you can’t get money to start up a betting company or bar for example.
The nice thing about it though is that the financer totally shares the risk and burden of investment with the borrower.
This means that instead of fixed interest payable even when investments don’t work, the financers shares the burden with the investor.
If there’s a loss, the loss is shared and if there’s a profit it’s also shared and the time value of money is not regarded here unlike in the western financial system.
If for example you borrow Shs 10M with the hope of making Shs 20M, if the investment doesn’t work you’re only required to pay the 10M and incase it works you pay a portion of that 10M profit as equity in the transaction or the investment.
You don’t also pay fines for late payments as the time value of money inst considered because money is looked at as a medium of transaction rather than an asset itself.
Am so sure this is an arrangement any entrepreneur locally would take on at first mention in relation to other available options.
It would really insulate the business owner/entrepreneur from the full effect of a fall incase they fell some thing that permits them to make bolder calculated risk.
It’s for this reason am still wondering why we haven’t been so quick to embrace it as an option for financing as country!?
Jaluum Herberts Luwizza is a Speaker,Writer and Contributor with the Nile Post.He is also a Business Consultant at YOUNG TREP East Africa’s No.1 Business Management and Consultancy firm that helps people start and grow profitable businesses.
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