Launch Partners

Launch Partners

Islamic bank’s VC arm takes unique approach to multiply effect with Shariah returns

Taking the private equity route, a bank’s Islamic venture capital (VC) management firm and a corporate finance advisory tapped into their combined networks within Malaysia to craft a Musharakah-based investment fund that provides a social financial service while seeking steady returns.

This undertaking was conducted through DPK Private Equity, a firm established on 6th August 2024 by Muamalat Venture (MVSB) and Aalto to operate as a fund “focused on overall investment growth and the potential for generating dividend income”.

This entity received its capital on 27th August 2024 via the designated institutional client subscribing to Islamic redeemable preferences shares (i-RPS) in DPK, while MVSB was appointed fund manager and Aalto as the corporate finance adviser for a five-year period, with the option for extension. The RM50 million (US$11.42 million) share subscription and management agreement was entered into on 12th August 2024.

“We made the fund bespoke to the institutional investor,” said Farid Zainuddin Rahman, the head of venture capital and private equity, investment banking at MVSB, a wholly owned subsidiary of Bank Muamalat Malaysia.

“Our initial approach was almost like presenting a blank piece of paper. We asked them what asset class they wanted and only then did we design the fund.”

Aalto Executive Director Ahmad Danial Anwar shared with IFN Investor that institutional client already had an internal investment management team – which had largely focused on securities available in public markets.

“They wanted to diversify the assets portfolio and after several discussions, they liked our proposal of private equity, as long as it could be within their risk appetite tolerance.”

The MVSB-Aalto proposal was for the fund to provide credit financing to Islamic pawnbroking (Ar-Rahnu) operations around Malaysia.

This asset class was identified as the main investment focus for the fund portfolio because of it being a stable business model with contracted returns upon redemption and pledges available to cover defaults. More importantly, this facility provides a good social service with quick access to short-term financing.

“The client chose to allocate 80% of the DPK fund to Ar-Rahnu,” said Farid. “The remaining 20% was for pre-IPO firms.”

Ahmad explained there were several key innovations with this Musharakah-based deal – with the foremost being the the institutional client being able to extend operations indirectly into an economic activity that was unrelated to its core business, while creating a major social and financial benefit within religious principles.

Taking the private equity route, a bank’s Islamic venture capital (VC) management firm and a corporate finance advisory tapped into their combined networks within Malaysia to craft a Musharakah-based investment fund that provides a social financial service while seeking steady returns. This undertaking was conducted through DPK Private Equity, a firm established on 6th August 2024...

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