Turkiye could welcome its first Shariah compliant debt-based crowdfunding platform as Ethis Group makes its move to establish itself in the Republic.
Running the last leg of a race it began two years ago, Ethis is waiting for final greenlight from the Turkish Capital Markets Authority. Once approved, it would add to the Islamic fintech venture builder’s global repertoire which includes licenses from Malaysia, Indonesia and Oman.
At US$1.12 trillion, Turkiye boasts an economy that’s been consistently ranked as the top 20-largest in the world by GDP. Its Muslim-majority 85 million-strong population and solid government Islamic finance commitment, along with digitalization progress, made it an appealing point of expansion for Ethis.
“The fintech infrastructure in Turkey is already well-developed, which allows us to automate many aspects of the investment process,” explained Umar Munshi, the founder of Ethis.
Like its Southeast Asian and GCC counterparts, Ethis Turkiye will have an SME focus – it will match local and foreign retail and institutional investors to short-term high-yield projects based on trading and a profit-sharing model. More specifically, it will facilitate SMEs to raise funding via micro or small-ticket Sukuk.
“If we capture just 0.5% of the SME working capital market and 0.1% of the liquidity pool, our addressable market is US$280 million,” projected Khaled Fouad, the managing partner of Ethis Turkiye.
The projections are based on the fact that short-term working capital needs of small and medium-sized manufacturing business are about US$56 billion, approximately 5% of the GDP; while the size of the Turkish capital market is US$275 billion in terms of liquidity.
Capital requirement
Ethis Turkiye is currently in fundraising mode: to meet the minimum required capital, and provide it with a three-year runway, Ethis Turkiye hopes to raise US$355,000 in exchange for 20% equity. Currently valued at US$1.7 million (with an expectation of reaching a US$50 million valuation in “a few years”), it has already secured the backing of several investors including Wahed Ventures, which is also assisting the Ethis in raising GBP150,000 (US$193,418.71).
To breakeven however, the platform needs 3,250 investors, run 80 successful campaigns of between US$80,000 and US$150,000 each. According to Khaled, with a revenue model of 8% in transaction fee per campaign, Ethis Turkiye would be able to achieve positive cashflow in 14 months. It expects to conclude over US$100 million in deals within five to seven years.
Product offerings
Confident that it will launch this year, Ethis Turkiye will begin with a Mudarabah offering, before expanding its product range to include automated investment portfolios, microfinance initiatives for women entrepreneurs, and Qard Hasan loan options.
“Our goal is not just to launch a business but to create significant impact by providing accessible, Shariah compliant financing,” shared Umar.
While the platform would be competing with 15 other (equity) crowdfunding platforms in Turkiye, Ethis believes it has a unique competitive edge – apart from the fact it will be the only Shariah compliant debt-based crowdfunding financier.
“Our primary competition will come from equity crowdfunding platforms trying to reverse-engineer our debt-based model, but we have a first-mover advantage,” opined Khaled.
