Is Outfund finance Sharia-compliant?

June 17, 2020

One question we’ve had recently from several founders and entrepreneurs is whether our funding is Sharia-compliant and therefore appropriate for practicing muslims. We’re happy to confirm that it  is!

In fact, our revenue finance model reflects some of the early innovations created by the Islamic finance model. 

What is Islamic finance?

The birth of Islam as a religion saw the adoption of a number of precepts and customs for life, relationships and business. This includes a number of tenets that apply directly to financing and funding enterprise.

The defining aspect of Islamic finance is that you can’t charge interest on your money. In simple terms, the principle is that money is a considered a measure of value, not an asset, so it’s wrong to get a yield on money alone.

But businesses still need capital and people still want to invest their money. During the Middle Ages, the Islamic world had already developed more advanced market economies than most of Western Europe and a number of innovative financing approaches were developed outside of simple interest-bearing debt: including profit and loss sharing, leasing assets and even business equity!

All these approaches allow investors to take on risk and receive reward, without receiving interest on their capital. 

So how is funding with Outfund Sharia-compliant?

At Outfund, our funding model is revenue finance, which has its earliest origins in some of the techniques of Islamic finance. We believe this model is compliant with Sharia.

Most importantly, we don’t charge interest on the money we advance you. In fact, it’s not actually a loan. It’s a discounted cash advance in return for a share of future revenues. Similar to the Islamic finance profit-sharing model, we get paid back by sharing in future sales.

Different scholars can have different interpretations of Islamic law, so to be sure you’re comfortable with our model, you can check with your Imam or other authorities.