Islamic tech startups: An ecosystem in the making
Islamic tech startups are poised for explosive growth, but remain limited in number. Investors in this space are also hard to find. What’s standing in the way?
The few Islamic tech startups who made it big in recent years have proven that there’s no shortage of concrete ideas across the Muslim world. However, only a few ever reach fruition, hinting at clear challenges facing this sector.
Pockets of incubators and accelerators that promote Islamic tech startups also exist, but the investor pool is rather modest.
“In the Muslim world, we have so many bright minds building amazing things, but we don’t see enough funding," Maruf Yusupov, a serial entrepreneur and advisor to Muslim startups, and a co-founder of Canada-based Salam Fund tells Salaam Gateway.
Salam Fund provides funding and guidance to Muslim entrepreneurs and has incubated several Islamic tech startups, and connected them with investors.
“Salam Fund is for early-stage startups. They come and join, and we help them for a period of three to six months. If they’re really good and successful, we’ll go and pitch their model to angel investors and get some funding as well,” says Yusupov.
Through his recently launched hub Deenpreneurs, which offers a weekly podcast and a Muslim Mastermind group, Yusupov also supports Muslim startups at different stages of their life cycle.
“We’re building an ecosystem. We have a portfolio of about eight startups [in Salam Fund] and soon we will be adding another two or three.”
Startup triumphs
Quran Era, an online Quran reading and game platform for English-speaking Muslim kids, is one of the startups backed by Salam Fund. The founders’ original idea was to impart Quranic educations to kids through an online academy.
“We told [the Quran Era team] that there were a lot of such products, we don’t need one more. We then brainstormed and came up with an interesting solution. We figured out that even though times have changed, our way of teaching the Qur’an has not,” says Yusupov.
“When we look at kids, they are on their devices all the time. We thought: why don't we teach them the Qur’an through games they actually enjoy? And that's what we did. Qur’an Era was launched two years ago, and it’s been a huge success. It now has over 18,000 users and 10 Islamic schools have joined, so the community is seeing the value. Our goal is to reach millions of students.”
Next, Salam Fund will be helping launch Zabihah.com, an 'Uber for halal restaurants'. Building on the mobile app which has existed for more than 20 years, the founders have now created the largest online directory for halal restaurants in North America.
“That's coming up just before Ramadan, and it’s going to be big because it already has around 800,000 customers. By the end of the year, we want to reach one million app downloads. We will start in the US first and eventually expand to other markets,” says Yusupov.
There are other Islamic tech success stories, too. Singapore’s Bitsmedia, the developer of lifestyle app Muslim Pro, secured $20 million in Series A funding to advance its technological capabilities. Saudi Arabia’s Lendo, a Shariah-compliant debt crowdfunding marketplace, raised $28 million to support its fast-growing customer base and expand into new markets.
Challenges
On balance, investors keen to fund Islamic tech startups - whether Muslims or non-Muslims, are far and few between.
It’s a paradox, says Yusupov, who is also a co-founder of Halal.Ad, a Muslim marketing and data agency.
“Unfortunately, Muslim investors tend to mostly invest in realistic and much more stable investments, and they see startups as risky, which they are."
He says that while up to 90% of startups eventually fail, at least 10% of them generate enough returns to make up for the losses on other startups. Then there are 1% or 2% that generate 10x or 100x return.
“That’s what we need to educate our Muslim investors and community. That’s the main challenge I believe.”
UAE-based Falcon Network, an angel investment network that connects impact-driven investors with entrepreneurs in high growth markets in Asia and Africa, initially wanted to focus on Islamic and ethical tech startups.
“We realised the hard way that the universe of opportunities was very small and limited to finding gems of high potential,” Dr Sayd Farook, senior partner for Oceania and GCC at DinarStandard, and venture investor and co-founder at Falcon Network, tells Salaam Gateway.
Instead of focusing exclusively on Shariah-compliant tech startups, Falcon Network broadened its horizon, focusing on connecting investors with both Muslim and non-Muslim entrepreneurs facing capital issues.
“The reality is that Islamic tech startups have almost similar needs to other startups, and when it comes to domain-specific expertise, this can be acquireds from specialists such as Falcon Network, says Dr Farook.
After funding the selected entrepreneurs, the company connects them with other venture investors, partners, and potential cofounders, and helps build their proposition so that it’s ready to level up to global investor expectations.
Plugging the holes
However, there is substantial reason for optimism, too.
According to DinarStandard’s State of the Global Islamic Economy 2023/24 Report, the Islamic fintech startup ecosystem has garnered significant traction.
“With 375 Islamic fintechs tracked, the opportunity to serve the largely unbanked population of Islamic markets is ripe,” the report stated.
So, what are startup founders missing, and what is needed to propel the sector?
Given the limited number of funds available in this ecosystem, being resourceful and launching with a minimal budget is a crucial aspect that is often overlooked.
“We see a lot of people with good ideas, but they don't know how to be resourceful and bootstrap in the early days. Some startups think they need $50,000 or $100,000 to launch. In reality, for most digital products, you don't need that much money. You might need $5,000 or $10,000,” explains Yusupov.
Getting the basics right is another aspect Islamic tech startups struggle with, according to Dr Farook.
This includes forming the right team with solid product, technology, and business expertise as well as identifying a large enough market with no strong competitors and speaking the language of investors.
“I can’t overemphasise the last one. Investors care most about a large untapped opportunity and a solid team. But the hygiene factor they care about is whether the founders will be able to go on and raise money from investors in subsequent rounds - and that’s all about your ability to communicate well with investors in the language and metrics they understand.”
On the investor side, the shortage of talent in management teams who understand the unique specificities of the Islamic tech sector is one of the major issues preventing more funds from going to startups.
“As Islamic tech startups like Muzz, Wahed, LaunchGood, and others gain global repute and develop a cohort of successful executives who launch their own startups, I’m sure there will be more interest by these hubs to cater to this specific sector,” says Dr Farook.
“What would be powerful and what I’m really looking forward to is when [Islamic tech-focused] investor groups collaborate on deals and do what traditional VC firms do - follow each other. We haven’t seen that in our space but when we do, we’ll start seeing some serious money and momentum moving into this space.”
Despite challenges facing the sector, there is much to look forward to.
