Islamic Venture Capital and Private Equity in Malaysia: Towards an Integrated Jurisprudential Framework (iBAF e-Proceedings)

Summary

• The global Islamic financial services industry reached USD 3.88 trillion in total assets according to the IFSB Stability Report 2025.p.1
• Total Islamic financial assets experienced a 14.9% year-on-year growth globally.p.1
• Malaysia's Islamic fund management industry held RM246.09 billion in assets under management in 2024.p.2
• In 2008, MAVCAP established a RM35 million fund identified as Malaysia's first Islamic venture capital fund.p.15
• The paper outlines an integrated framework evaluating ten core operational components of modern VC and PE funds under Islamic law.p.1
• The study demonstrates that an Islamic VC fund operates as an institutional synthesis of multiple Sharīʿah contracts rather than a single nominate contract.p.1

Key insights

1. Traditional debt-like instruments such as murābaḥah and ijārah dominate Islamic finance but fail to capture its core risk-sharing ethos.p.2
2. Venture capital requires active fund management, board seats, and protective rights, which fundamentally alter the risk profile compared to passive equity investing.p.2
3. Rulings of the Securities Commission Malaysia Sharīʿah Advisory Council are legally binding in court and arbitral proceedings.p.5
4. Existing Islamic fund management guidelines focus heavily on screening public equities but lack tailored qualitative screening methodologies for early-stage VC investments.p.6
5. The General Partner role can be structured as a hybrid wakālah-muḍārabah model, acting as an agent for operations and a muḍārib for performance.p.9
6. Limited Partners can exercise protective shūrā and veto rights without violating muḍārabah rules or forfeiting limited liability status.p.9
7. Carried interest can be jurisprudentially justified through juʿālah for performance combined with tanāzul by investors.p.12
8. In-kind asset distribution (qismah ʿayniyyah) allows illiquid portfolio holdings to be distributed to LPs at fund termination without forcing fire sales.p.14