The document provides an overview of various sources of financing, including both conventional and Islamic options. It discusses debt financing through instruments like bonds, sukuk, murabaha, and qard al hassan. It also covers equity financing such as venture capital, public offerings, private placements, and Islamic structures like musharakah and mudarabah. Practical tips are provided for sourcing financing, including factors financiers consider, requirements for applications, and emphasizing the importance of istighfar.

1. Sources of Financing
Presented by Ndako Mijindadi
at The Guild of Muslim Professionals Convention
(2016)

2. 2
Outline
• Basics of Financing
• Sources of Finance
• Debt Financing
• Conventional
• Islamic
• Equity Financing
• Conventional
• Islamic
• Practical Tips for Sourcing Financing

3. 3
Overview
• Will you start a business
without considering the
source of your raw
materials?
Considering the source of finance should be the 1st step

4. 4
For many individuals and
businesses, financing is often the
missing link required to take
them to the next level.
• What type of financing do we need
What
• At what point do we need each type of
financing
When
• What is the capital raising process?
How
• Where do we get funds from?
Who
We need to understand:
Financing Basics

5. 5
Financing Basics
Back to the Basics
Parties There are typically two or more parties
involved in a financing contract (financier
and the financed)
Purpose The purpose of seeking finance can vary
between short term to long term needs
Pricing Financing always almost comes at a cost
which is considered the return on
investment to the financier
Short Term
Medium Term
Long Term

6. 6
Individuals
• Long Term
• Home Acquisition
• Short - Medium
Term
• Rent Payment
• School Fees
• Car Acquisition
Businesses
• Long Term
• Business Capital
• Property
Acquisition
• Business
Expansion
• Short Term
• Working Capital
Government
• Long Term
• Infrastructure
finance
• Developmental
Finance
• Short Term
• Payroll
• Overheads
Common Financing Needs include:
Financing Basics
Back to the Basics
Financing duration needs to match your objectives

7. 7
The 6 common sources of funds
Personal
Funds
Family
&Friends
Private
Investors
Grants
Banks/ Fin.
Institutions
Public
Financing Basics

8. 8
Personal
savings is a
goldmine!
• Most individuals or business have some avenue
to save.
• In the time of need and shortfall of funds, the
savings/earnings automatically become the
first source of finance to take advantage of.
• This is usually the cheapest form of finance
• Savings can vary in the form of bank deposits,
stocks, pooled investments etc
• This form of financing is mostly used by
individuals and small businesses to finance
short term needs such as asset acquisition
• Many companies also resort to retained
earnings for expansion.
Financing Basics

9. 9
Sources of Personal Finance
Financing Basics
5%
Helping
Hand
Account
55%
Basic
needs
accounts
10%
Enjoyment
account
10%
Educate
yourself
account
10%
Saving to
Spend
Account
10%
Siddon
look
Passive
income
Lotus
Financial
Health
Plan

10. 10
Sources of Funding
Forms of Finance
Debt Equity
There are two broad categories of financing that are not very well
understood.
Not Yours Yours
Debt providers are different animals from equity providers

11. 11
Debt Finance
• Debt financing involves
borrowing funds from creditors
with the stipulation of repaying
the borrowed funds plus interest
at a specified future time.
• For the creditors the reward for
providing the debt financing is the
interest on the amount lent to
the borrower.
• Debt financing may be secured or
unsecured.
Sources of Funding

12. 12
Debt Finance
Medium-
Long
term
• Bonds
• Debenture
• Mortgage
• Finance Lease
Short
term
• Personal Loan
• Bank loan
• Overdraft
• Credit Cards
• Commercial Paper
• Treasury Bills
Sources of Funding

13. 13
Murabaha
(Cost Plus)
Qard Hassan/
Benevolent
Loan
Sukuk
• In Islam, debt is generally discouraged
• However the shari’ah permits certain debt
like contracts
• Unlike conventional finance, in Islamic
finance any form of finance must be based
on a tangible/valuable asset.
Islamic debt finance is not a “money for
more money” contract
Islamic debt finance is underlined by Trade
or Good will
• All activities underlying Islamic debt
financing must be permissible
Islamic Debt Finance
Sources of Funding

14. NIFI
Supplier
Client
Cost plus
mark up
1. The client approaches a NIFI
and expresses intent to engage
in a Murabaha transaction
facilitated by the financier
2. Subject to the financier’s
approval, the client signs a
"Promise to Buy“ agreement
3. NIFI purchases the asset
4. NIFI sells to client at marked up
price and client pays in full or in
instalments as pre-agreed
Cost PriceAsset
Asset
Islamic Debt Finance - Murabaha
Sources of Funding

15. 15
Goods Purchase of Goods Receipt of
Goods
Price & Mark Up Repayment
Quality and
quantity must be
clearly stated and
agreed upon
Client should not have
made purchase of the
good prior to the
murabaha agreement
Client can
appoint an
agent to
receive the
goods.
Must be clearly
stated and
agreed upon
Clearly stipulate
• Amount of
each
installment
• Timing of each
installment
• Total duration
of installments
Goods must be
shari’ah
compliant
Financier can appoint
the client as an agent
to purchase the goods
on his behalf.
No portion of this
is to be paid prior
to the buyer
taking delivery
Not to be resold
prior to delivery
Supplier of goods
must be a third party
Islamic Debt Finance - Murabaha
Sources of Funding

16. 16
• Sukuk are non-interest debt instruments, which are developed in
accordance with Islamic tenets.
• They are otherwise known as the Islamic equivalent of a bond.
• The underlying activity financed must be Shari’ah permissible in
both nature and use.
• Sukuk holders have recourse to the assets acquired with the sukuk
proceeds in the event of the originator’s bankruptcy.
• Sukuk is mainly used as a form of financing by corporates and the
government
Islamic Debt Finance - Sukuk
Sources of Funding

17. 17
Sukuk
• Sukuk represents ownership
stakes in existing and/or to be built
well defined assets.
• The underlying contract for a sukuk
issuance is a permissible contract
The sale of a sukuk represents a
sale of a share of an asset
• The underlying assets financed by a
Sukuk issuance must be Shari’ah
permissible in both their nature and
use
Conventional Bond
• Bonds represent pure debt
obligations due from the issuer;
• The core relationship is a loan of
money, which implies a contract
whose subject is purely earning
interest on principal
• The sale of a bond is basically the
sale of a debt
• Bonds, can be issued to finance
almost any purpose which is
legal in its jurisdiction
regardless of moral screen
Islamic Debt Finance - Sukuk
Sources of Funding

18. 18
Islamic Debt Financing- Sukuk in Practice
18
Osun state issued the first sub-sovereign sukuk in
2013 to raise funds for the construction of
schools
Model schools
Sources of Funding

19. 19
• A goodwill loan against which interest is not charged; where only the
principal amount is to be returned in the future
• This is typically the type of funding obtainable from friends and family
Islamic Debt Financing- Qard Al Hassan
Initial Loan
$10,000
Repayment
$10,000
Time A-B
Sources of Funding

20. 20
Equity Financing
• Equity typically involves selling a stake in a
business/project to raise additional
funds/capital
• It is underlined by profit and loss sharing
• Equity finance is long term focused but
through stock exchanges several
investors/financiers can exit over a short
period.
• Equity is the most expensive form of
finance because the “shareholders” bear the
underlining risks of the business.
• Equity finance is generally permissible by
the shari’ah
Sources of Funding

21. 21
Venture Capital Angels
• High Net Worth Individuals or
retired company executives
• Investors contribute experience,
contacts and management
knowledge
• Investor supervises
management
• Usually for companies with high-
growth potential
• Investor looks for exit plan
(IPO)
• Investors should bring relevant
experience
Equity Financing - Start Ups
Crowd Funding
• Raising many small amounts of
money from a large number of
people
• Typically happens via the
Internet.
Sources of Funding

22. 22
Public Offerings Private Placement
• Shares are offered to a close knit
of select individuals and
institutions
Initial Public Offerings
• Ordinary Shares
• Preference Shares
Rights Issues
Sources of Funding
Equity Financing - Big Companies
Companies often employ the services of a professional financial adviser
to help structure these equity capital raising deals
Advisers come in different shapes and sizes

23. 23
Musharakah (patnership ) Mudarabah
• Business partnership between
two or more parties
• One party provides capital, while
the other provides the investment
management expertise
• Both share profit based on pre-
agreed terms
• In the case of a loss, the investor
bears any loss of capital while
the Mudarib loses his time and
effort
• Musharakah means a joint
enterprise formed by the
contribution of capital by
multiple parties.
• Profit on the enterprise is shared
on a pre- agreed ratio
• Losses are shared based on the
percentage of capital
contribution
Sources of Funding
Islamic Equity Finance

24. 1. NIFI and Client enter into
Musharaka agreement and
fix profit sharing ratio
(PSR)
2. Client manages business
3. Profits are shared
according to agreed ratio
and losses are shared based
on capital contribution
4. In the NIF industry, the
musharakah contract is
largely used for
mortgages
Capital & Effort
Client
Non Interest
Financial
Institution
Project/Asset
Acquisition
Project Revenue
Capital &
Effort
Musharaka
contract
Islamic Equity Finance - Musharakah
Sources of Funding

25. 25
Sources of Funding
Partners Capital Business
Profit
sharing
Contract
Partners have
the right to
- Appoint
agents & be
appointed
as agents
- Right to sell
the mutually
owned
property
Any form of
liquid or illiquid
asset
Not Debt
Quantifiable and
specified amount
Permissible
Role of the
partners to be
duly specified
Based on ratio
agreed
Not restricted to
capital contribution
basis
Not in absolute
amount
Loss based on
capital contribution
Clear and
definite in
language
Islamic Equity Finance- Musharakah

26. NIFI
Client Project
Project
Revenue
Capital
Management
Profit/LossProfit
1. NIFI & Client enter
into Mudaraba
agreement and fix
profit sharing ratio
(PSR)
2. Client manages
business
3. Profit is shared
according to PSR
4. Loss is absorbed by
the NIFI
Islamic Equity Finance- Mudarabah
Sources of Funding

27. 27
Sources of Funding
Mudarabah &
Musharaka
Financing
Short/medium/long term financing
Project financing
Small and medium enterprises setup financing
Large Enterprise
Import Financing
Export financing (Pre-shipment financing)
Letter of Credit financing
Working capital financing
Islamic Equity Finance

28. 28
Sources of Funding
Other Islamic Finance Modes
Ijarah
(Lease to own)
Istisna’
(Construction Finance’)
Salam
(Deferred Delivery)
is a contract in which
advance payment is
made for goods to be
delivered later on.
Mostly used to finance
agricultural produce
A contract of exchange
with deferred delivery,
applied to specified
assets that are
manufactured on
order
is a simple leasing contract
where a party leases an asset
for a specified rent and term.
This may include an option to
buy the asset at the end of the
lease

29. 29
The Big Decision- key things to consider
Practical Tips for Sourcing Finance
Debt
Equity
• Equity involves loss
of control
• Less burden on
company profits
• Funding stays in for
a long term
• Both Parties share
profit & Losses
• Control is retained
• More burden on
company profits
• Default could result
in losses of
personal asset

30. 30
Type of business Size of business
Urgency of financing
need
Availability of collateral Stability of cashflows
Business prospect and
profitability analysis
The Big Decision- key things to consider
Practical Tips for Sourcing Finance

31. 31
Practical Tips for Sourcing Finance
Approaching a Financier
When a financier is asked by a customer for a credit facility, he will consider
several factors;
• The purpose of the loan A loan request will be refused if the
purpose of the loan is not acceptable to the bank.
Purpose
• The customer must state exactly how much he wants to borrow.
The banker must verify,
Amount
• How will the loan be repaid?
Repayment
• What would be the duration of the loan?
Term
• Does the loan require security?
Security

32. 32
Practical Tips for Sourcing Finance
Approaching a Financier- Requirement Checklist
Asset Acquisition (Individual)
Application Letter
Pro-Forma Invoice (In the Name and Address of financier)
Referral letter from employer
Source of repayment
Three (3) months pay slip and last six (6) months bank statement. If from any other
source please specify.
Minimum contribution of 20%
List and Details of Bank Borrowings
C V (with passport photograph)
Two Guarantors (Name, Phone Numbers, Details of Relationship and Address)
Completion of Know Your Customers Form (KYC)

33. 33
Practical Tips for Sourcing Finance
Approaching a Financier- Requirement Checklist
Asset Acquisition (corporate)
Application Letter Two Guarantors (Phone Numbers, Details of Relationship
and Address)
Pro-Forma Invoice (In the Name
and Address of financier)
Minimum of 20% contribution
Company Profile & Management
Profile
Memorandum and Article of Association (Certified true
copy)
Projected cash flow for the tenure
of the lease
Certificate of Incorporation
One year historical cash flow of
your company
Board resolution
Company last six months Bank
statement
C0.7 (List of Directors)and C0.2 (List of Shareholders) -
Certified true copy
Company last audited financial
statement
Passport Photograph of all Guarantors with copy of
means of identification e.g. Drivers License, International
Passport or Office
List of bankers
10.Other bank borrowings

34. 34
Practical Tips for Sourcing Finance
When a financier is asked by a company for equity investment, he will consider
several factors;
Entrepreneurial spirit
Competence
Commitment
Financial Discipline
Governance + Trust
Uniqueness of the idea
Workability
Profitability
Exit

35. 35
Practical Tips for Sourcing Finance
Rasul Allah (sallallaahu 'alayhi wa sallam) said, “If
anyone continually asks forgiveness, Allah will
appoint for him a way out of every distress, relief
from anxiety, and will provide for him from where
he never realized.” (Abu Dawood, Book 20, Hadith
1873)
“Ask forgiveness of your Lord. Truly He is Oft-
Forgiving. He will send rain to you in
abundance; increase you in wealth and
children; grant you gardens and bestow on you
rivers.”’“ [Nuh (71):10-12]
Make Istighfar

36. Thank you for listening