THE current global financial crisis has seen growing numbers of individuals, let alone businesses, who have found themselves unable to get credit. This applies to communities all over the world and has further exacerbated the financial problems of individuals and further marginalized the so-called unbanked of the world.
In London, Faith Matters, which was incorporated as a not-for-profit community interest company in February 2007, a few days ago launched the Kafaala Ethical Fund which, according to the promoters, is a “non-interest based fund that meets the religious obligations of some faiths but it is open to all; that provides small business loans for existing businesses and start ups; and that is open to the financially excluded who cannot get access to credit from banks.” Stephen Timms, exchequer secretary to the UK Treasury, speaking at the launch, welcomed the establishment of the Kafaala Ethical Fund and said that it would further contribute to London’s ambition of becoming a major hub for Islamic finance. “London relies on its position as a gateway to the world. It is the most important financial center in the world. We want to maintain this and Islamic finance can play an important role in sustaining this ambition,” he added.
Only two weeks ago the latest provisions in the Finance Bill 2009 relating to stamp duty land tax and capital gains tax reliefs received royal assent. This will make Islamic real estate transactions and sukuk equally competitive as the equivalent conventional products. The Kafaala Ethical Fund perhaps is misnamed because it is effectively a micro-finance investment vehicle which aims to extend financing of between 2,500 pounds and 10,000 pounds on a Mudaraba basis to residents in inner city London — to both Muslims and non-Muslims, initially in five boroughs on a Shariah-compliant basis. The fund has received seed capital from The Enterprise Credit Union, a successful credit union based in Enfield in north London, which “offers lending of last resort especially to those who are financially excluded.”
Fiyaz Mughal, Director of Faith Matters, stressed that “a Shariah-compliant ethical fund for business loans will encourage entrepreneurship and self reliance, offering deprived communities new opportunities to succeed in business. It will also be one way of promoting a better understanding of Islam.” Although the Kafaala Ethical Fund is not overtly being marketed as an Islamic fund, it is implicitly Shariah-compliant.
This is not the first move into Islamic micro-finance in the UK. Last year the Islamic Development Bank (IDB) extended a $1 billion grant to the Prince of Wales Charities to supply start-up funds to young disadvantaged and troubled people in inner city areas in the UK in order to help finance viable small projects and businesses. This grant came under the MoU signed by the Prince of Wales Charities and the IDB on the occasion of the latter’s 30th anniversary in 2006.
Faith Matters was partly established due to ongoing issues between faith communities that were affecting community cohesion and partly due to a desire to bring faith communities together to understand commonalities, historical and religious similarities and the need to develop a bedrock of mutual support and assistance to combat xenophobia, intolerance, distrust and ignorance.
This is not the first fund set up by Faith Matters. It has already launched the Jerusalem Interest Free Fund, which provides micro-finance loans for business start-ups and educational courses for both communities on an interest free basis which meets religious requirements of Muslims, Christians and Jews.
Another Faith Matters initiative, Future Visions Charity, supports entrepreneurism in the West Bank through micro and small business loans to people in outlying villages in Palestine. These loans are targeted toward Palestinian women who are the central focus within Palestinian families and who are the “glue” which hold them together.
