The Middle East gets its first peer-to-peer lending site, with Sharia compliance

by Stephanie d'Arc Taylor, November 27, 2013

Looking back at the year, 2013 has clearly been the year of crowdfunding– especially in emerging markets and the Middle East.

This year, Indiegogo’s co-founder and chief executive Slava Rubin told PandoDaily that the site has seen its “transaction volume outside of the US triple over the last year; and has transferred money to some 190 countries since its launch.” 

In the Middle East, crowdfunding (in which donors contribute to a campaign) and crowdinvestment (in which investors contribute for a slice of a company's equity) are quickly becoming very popular alternatives to the challenge of seeking seed and angel investment. 

We've seen the rise of crowdfunding platforms Aflamnah and Zoomaal, which, since its launch in July, has hosted eight successful projects, the most famous of which is Lebanese indie-rock band Mashrou3 Leila's US $66,000 campaign to fund its third album. In May, a new platform for equity crowdinvestment, Eureeca, launched and then helped skills community Nabbesh raise $30,000 in 24 hours, before reaching its goal of $100,000.

Now, with the launch of Liwwa in Amman this month, we finally have the first regional peer-to-peer lending site, with a local twist: it's Sharia compliant.

The platform's P2P lending model – pioneered by co-founders Samer Atiani and Ahmed Moor – may appeal to investors and beneficiaries (the latter is a carefully-chosen designator) in ways that Zoomaal and Eureeca don’t, regardless of their religious beliefs; it has a set profit rate of around 7%. Beneficiaries receive a lease-to-own deal on equipment they need to run their business profitably; the only general caveat is that investment amounts are very small.

Here's how it works: say an entrepreneur needs to buy a $5,000 USD delivery van for her growing bakery business. She pitches to investors on the Liwwa site, and when they pledge the full amount, Liwwa buys the van for her. At this point, our entrepreneur has six months to pay back her investors the full amount plus a $500 USD profit rate. (Six months is the only option now, but Atiani and Moor are looking into more options for time frames). After Liwwa takes a 2% cut, investors get their money back and a tidy profit, and our baker walks away with a new van that she was able to use before she’d paid for it in full.

Moor and Atiani met in Ramallah years ago, but joined as partners while Moor was attending Harvard’s Kennedy School of Government and Atiani was working in Brooklyn as a senior software engineer at Etsy, the marketplace for handmade goods. They agreed that one of the major problems facing the region today is the “extremely low financing rates, [which make] it very hard for small businesses to get a loan.” Seeing that small and medium businesses are constituting the majority of current economic activity, they developed Liwwa to address the funding gap for small loans.

Liwwa, Atiani says, “is a way to allow people in the region to invest in small businesses” belonging to their friends and peers. “The Middle East has one of the highest savings rates in the world, but people don’t use a lot of credit, and there aren’t a lot of investment opportunities,” Moor adds. Unlike microfunding sites like Kiva, however, Liwwa isn't not limited- nor branded- as catering to low-income populations. 

Further, in Muslim-majority countries the world over, “there is concern about engaging in any kind of activity that could be considered haram,” that is, contrary to the principles of Islam. The Liwwa team is especially careful about the way it structures its returns; because it is forbidden in Sharia to "collect on the price of money, in Moor’s words, there is no mention anywhere of an interest rate; instead, the term “profit rate” is adopted, to reflect the investment’s nature as a “value-added service.”

However, although Atiani and Moor have thus far emphasized the halal nature of Liwwa, they see it as a relevant model globally (returns are returns). While Lebanon, the rest of the GCC, and other Muslim-majority countries are first on the list, after these, they look to expand to the rest of the world.

The demand for new methods of financial exchange exists, in the Middle East and all over the world. The question is, are the lease-to-own and profit rate mechanisms strong enough for Liwwa to attract investors and beneficiaries who are not constrained by Islamic financial practices? Peer-to-peer lending is already booming around the world; perhaps the time has come for a local platform.

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Stephanie is a Features Editor at Wamda. Connect with her on Twitter @SdArcT