Shariah-compliant finance is still often treated as a specialist product for Muslim business owners who want funding that aligns with their faith. That view is becoming too limited for what is happening in South Africa’s SME market.
The demand is increasingly coming from everyday trading sectors, including building and hardware, fast food and restaurants, automotive, healthcare, clothing, and homeware. These are businesses that employ local people, buy stock, support suppliers, serve communities, and respond quickly when demand shifts.
Muslim business owners are deeply affected by a lack of access to Shariah-compliant funding. “What matters is how those businesses use capital,” says Alfred Ruwanda, Senior Channel Operations Manager at Merchant Capital. “Funding may support stock purchases, equipment, refurbishment, additional capacity, or working capital when supplier payments and customer demand do not line up neatly.”
Ruwanda explains that these decisions determine whether an SME can take on the next order, serve more customers, create another job, or maintain momentum through a demanding trading cycle.
“Without it, they’re generally left with three options: rely only on personal savings or informal community lending (which limits growth), use conventional interest-based credit despite religious discomfort, or turn to unregulated lenders with fewer protections.”
He points out that the result is a form of financial exclusion: creditworthy business owners that are underserved simply because available products conflict with their beliefs. “That’s the gap Shariah-compliant short-term funding is meant to close.”
Capital with the Right Structure
When it comes to Shariah-compliant funding, two elements are at play. Firstly, entrepreneurs are looking for the right amount of capital that can help them grow. Secondly, they seek instruments that don’t follow the conventional interest-bearing loans that do not align with recognised Shariah commercial principles.
“SME owners often cannot wait weeks for capital when an opportunity appears. Stock cycles, supplier deadlines, renovations, equipment needs, and seasonal demand do not wait for slow funding processes,” says Ruwanda. “Access to capital must match the pace of the business.”
The key difference between Shariah-compliant funding and other types of funding is that returns can’t come from charging interest (riba) on money lent. “Instead, the funder earns a return by genuinely participating in a transaction, through trade, an asset, or an agency arrangement, and shares in the underlying commercial risk rather than just transferring it to the borrower,” he explains. “Funding must be tied to a real economic activity, contracts must be clear and free of excessive uncertainty (gharar), and money can’t go into prohibited industries like alcohol or gambling.
“A Shariah scholar or board signs off on the structure to confirm it complies. In our case, we use a Wakala structure: we act as an agent, deploying funds into permissible commercial activity for an agreed fee, rather than lending at interest.”
Merchant Capital is one of only two providers in South Africa offering short-term, unsecured, Shariah-certified business funding, with options designed to be fast, flexible, and responsive to how SMEs trade.
Trade Follows a Calendar, and So Should Funding
Ruwanda explains that he often sees increased funding activity in the months after Ramadaan, when many business owners reassess stock levels, trading capacity, and the next phase of growth while staying aligned with their values. “Ramadaan is one point in a wider trading calendar that shapes when SMEs need capital.”
Other factors include the industry in which Muslim business owners operate. He shares the following facts:
Building and hardware businesses often prepare for stronger spring and summer construction demand.
Restaurants and hospitality operators may need additional stock, equipment, or capacity as year-end gatherings and warmer weather lift trade.
Clothing retailers also buy ahead of seasonal wardrobe demand.
Medical practices provide essential services year-round, so working capital may be needed at any time for equipment, technology, premises, staffing, or day-to-day operations.
Funding Instruments Address Specific Needs
Funding instruments are designed to meet specific needs. Not only is it helpful when entrepreneurs can meet their needs with the funding that is designed for each particular need, but it is best when funding arrives before demand, giving owners time to prepare rather than forcing them to catch up once the trading opportunity is already underway.
In Shariah-compliant funding, funding instruments also look different from the well-known types of funding that business owners without religious requirements might turn to. And it varies by purpose:
- Wakala (agency): the financier acts as an agent, deploying capital into permissible business activity for a fee. Its flexibility around short, defined periods makes it well suited to short-term lending.
- Murabaha (cost-plus sale): the financier buys an asset the client needs and sells it on at a disclosed mark-up.
- Mudarabah (profit-sharing): one party provides capital, the other expertise, and profit is shared on an agreed ratio.
- Ijarah (leasing): the financier buys an asset and leases it to the client.
- Musharakah (joint partnership): both parties contribute capital and share profit and loss.
“For a short-term lender, Wakala is the most practical fit,” Ruwanda adds.
Beyond SME Growth
“South Africa’s SMEs have always had to operate with resilience. They deal with rising costs, shifting consumer demand, infrastructure pressures, and limited access to finance, yet still find ways to grow because they understand their markets and act quickly when opportunities arise,” Ruwanda acknowledges.
“Shariah finance offers entrepreneurs another source of capital, particularly in sectors that create jobs, support suppliers, and strengthen local economies. The next phase of growth will depend on access and understanding. More business owners need to know that Shariah-compliant funding is available, how it works, and how it can support expansion without compromising how they choose to operate.” This is vital, because it’s estimated that 20% of South African Muslims are engaged in trade or commerce.
“As more SMEs use Shariah finance to fund stock, equipment, expansion, and working capital, it is becoming part of the practical funding mix that helps South African businesses grow, compete, and build long-term resilience,” he concludes.
