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Starting your own business is a daunting experience, but with Islamic microfinance things do get easier. Sharia compliant small finance loans are readily available for entrepreneurs who may not be able to obtain financing through traditional banking. With the help of such a loan, you can cover initial setup costs such as UAE business license, rent, equipment, machinery, and inventory.

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In this article, let us explore how Islamic microfinance could help you start your own business in the UAE.

How Islamic Microfinance Works

Firstly, Islamic microfinance for small business in UAE gives you access to normal banking services. These services include the ability to procure loans.

In conventional banks, there is often a set of requirements that new entrepreneurs might not be able to meet. For example, a new entrepreneur might not possess high-value assets to use as collateral. They might also not have a positive credit history.

However, when you start your business with Islamic microfinance, you know the products or services you will receive are based on Sharia law. This means nowhere is there any inclination toward an interest-based framework, but rather the shared profit-loss system approved in Islam.

Benefits of Islamic Microfinance for Entrepreneurs

Islamic loans for UAE entrepreneurs have several advantages, such as:

  • They give borrowers the ability to get small finance to mitigate setup costs such as licensing, rental fees, office equipment, inventory and so on.
  • Islamic lending is Sharia-compliant, meaning your faith is never compromised.
  • Islamic microfinance fosters an environment of fairness and social responsibility.
  • These loans provide a low-cost solution for people in need of financial assistance.
  • They promote entrepreneurship.

Also, as more businesses start, there is an increment in job opportunities which directly leads to the growth of the local economy. Additionally, there is no bias in terms of who can get financing. This leads to an environment of financial inclusion with equable accessibility to banking services. This is especially important, as Islamic microfinance for entrepreneurs is open to women as well as men who have innovative business ideas.

How to Get an Islamic Microfinance Loan in the UAE

To get financing for your business with Islamic microfinance in the UAE depends on the amount, your small business idea, and from which loan institute you are trying to get funding. Another consideration is whether you already have a business up and running and need working capital or startup capital. Many of the microfinance institutions in the UAE are in strategic partnerships with local banks specifically to cater to the demands for microfinancing.

Take the Emirates Development Bank (EDB), for instance. It has a strategic partnership with First Abu Dhabi Bank (FAB). Under this scheme AED 100 million is set aside for small to medium businesses by FAB, while 50 percent of the loan amount is co-lending or guaranteed by EDB.

EDB offers many different types of Islamic microfinance products, one of which caters to micro and small businesses in the UAE. The key features of the scheme are:

  • A borrower must be a UAE national.
  • They must be employed, although salary transfer is not mandatory.
  • Loan tenor is for 48 months.
  • Lenders will finance up to AED 500,000.
  • The current profit rate is 6.99%.

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Conclusion

Entrepreneurs looking to start or grow their business may find Islamic microfinance convenient. Not only does the finance structure align with Islamic religious beliefs but also these loans are also easier to obtain than traditional loans. Best perhaps is that entrepreneurs can bypass the interest rate system and adopt more approachable pay-back terms.

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