Biniyog.io: How an investment platform is bridging the SME funding gap

Finding the right investment opportunity in Bangladesh is a challenging task, made more difficult by a lack of financial literacy. So parking idle cash in banks and savings certificates are the go-to options for most. 

But what about those who, for religious reasons, do not want to get returns in the form of interest? 

This was Shabab Shahriar Khan's primary concern when looking for investment opportunities during the pandemic. Despite several halal investment options in Southeast Asia and the UK, he failed to find any such platform in Bangladesh for small businesses. 

So, he decided to start one himself. 

Once he started working on it, Muhammad Saeedul Alam, whom he knew through a mutual friend, joined him as a partner, and together they founded biniyog.io in September 2021. 

biniyog.io is a Shariah-compliant investment platform aiming to create investment opportunities in businesses outside formal banking services. Currently, two types of formal investment are available in Bangladeshi banks – conventional interest-based investment and Shariah-based Islamic investment. 

However, most Shariah-based formal banking does not maintain transparency when it comes to the implementation of the Shariah contract. This did not sit well with Saeed.

"Transparency in investment and Shariah contract implementation is what makes or breaks the Shariah compliance," Saeed told TBS, "But when a depositor keeps money in a Shariah-based account, they cannot be sure where the bank is utilising their money. With us, however, the investor can decide where their money will go, for what purpose it will be used and how it will generate profit." 

Shariah compliance is a personal preference and priority for both founders. As practising Muslims, they sought opportunities to make Shariah-compliant profits, not interest-based investments. 

Once Shabab started market research, he realised there were not enough funding opportunities for small and medium enterprises (SMEs) in Bangladesh. 

While answering why it is difficult for small businesses to access financing from traditional sources in Bangladesh, the two founders told The Business Standard that it is primarily because of various requirements such as mortgages and extensive documentation. This can be cumbersome and stressful for small business owners. 

"That's how we got to the idea that we could build an ecosystem where both parties – the investors and SMEs – can benefit from each other," said Shabab. Until August 2023, biniyog.io had raised more than Tk8 crore for approximately 1,100+ investments.

The early days

biniyog.io started as a bootstrapped company with a small team of two. Shabab went to BUET and studied CSE. Then, he worked as a software engineer for about five years before starting biniyog.io. Saeed graduated from IBA, Dhaka University, and worked in the telecom industry for six years. 

At the time when biniyog.io started its journey, both of them were full-time service holders. 

"It was a happy coincidence that both of us were individually looking for the same thing at the same time. We were looking for halal investment options but could not find any that suited our needs," Saeed said. "So when I saw Shabab was looking for a partner to start biniyog.io, I thought that is what I want to work  on." 

Shabab added, "In a sense, we were our own customers at the beginning. We created something that we would have loved to have as investors." 

Once partnered, Shabab and Saeed decided to build a version of their platform as a website. The website was developed within a week or so. After that, they found a business that wanted to raise investment — a food and agro-based business, dealing with chicken farms and eggs. 

However, they had no playbook or framework for the assessment phase at the beginning. These frameworks came later as they explored more businesses and ideas. 

They looked into the financial side of that food and agro-based business and thought it could be a good business to invest in. Besides, they knew the people who had run this business beforehand. 

"We were not sure, but went ahead and pitched to them anyway. Then we were able to convince them to pay us a service charge for raising investment funds for them," Shabab said. 

The campaign was put on the website once the deal was struck. "We explained to people that this is what we are trying to do, and this is an investment opportunity that you could explore. We also created a Facebook group. We shared as much of the assessment findings as we could," Saeed explained.

The target for the very first campaign was to raise Tk10 lakh. They ended up raising over Tk12 lakh. The response was so good that they had to end the campaign before the deadline. 

But then there was a big dip. 

"The next month we did not have any business at all. So that was a huge test of patience for both of us. But luckily, things went up after that," added Shabab. 

The halal investment model 

biniyog.io follows two types of contracts with the investors — Musharaka and Murabaha. 

Musharaka is a partnership contract. According to Shariah law, it refers to a partnership where two or more people combine either their capital or labour, forming a business. All partners share the profit according to a specific ratio, while the loss is shared according to the contribution ratio.

Since it is a very involved process, the investors of biniyog.io do not usually opt for a Musharaka contract. Their preference is for the Murabaha contract. 

According to Shabab, Murabaha is a sales contract. Under this contract, they raise funds from the investors and buy particular goods or products that the business applying for the fund asks for. Then, the business pays off the price of the goods in instalments according to the contract.

This sales contract protects the investors as a profit margin is included in the sale price of goods. Saeed said, "Our Shariah consultant is IFA Consultancy. We regularly consult Muftis and Certified Shariah Adviser And Auditor (CSAA), going to great lengths to ensure that the conditions we operate in are Shariah-compliant."

Vetting businesses

According to Shabab and Saeed, their platform follows rigorous assessment and risk-grading mechanisms to evaluate and assess businesses. The first step of this mechanism is that they only cater to businesses running for at least a year. That means they do not raise funds for businesses that are at the idea stage but rather have some proven and consistent revenue.

Then, the real assessment begins once the businesses put forward their application. 

"We check their business health, financials, bank statements, supporting documents, viability, conduct with suppliers and existing clients, business KYC, legal documents, and many other factors. We also assess the macroeconomic factors in that particular industry," said Saeed. 

biniyog.io is a 12-member team right now. Among them, six are dedicated to investigating the risk factors of a business applying for investment. 

Once the necessary data is collected, the team condenses all the information into a risk score. "We have 35 data points for determining the risk score. For convenience and better understanding for our investors, we use risk grades such as B, B+, etc., where B+ is less risky than B," Shabab explained. "Based on that score, we have a cutoff point, whether a business is eligible for financing through our platform."

The entire process of collecting these data and calculating the risk factors usually takes a few days. After that, if a business passes the assessment process, the campaign for raising investments starts, running through its website and mobile app.

Risk mitigation 

Once the investment fund is raised, which takes two weeks on average, the platform signs legal agreements with the business on behalf of investors. "Investors can also sign agreements themselves separately if they want," Shabab said.  

Saeed added that they take security cheques from businesses, which can be used if they breach the contract. 

They have also developed processes for investors to reduce their risk exposure. For example, the minimum investment they currently cater to is Tk10,000, and they encourage investors to diversify the risk by investing in multiple businesses instead of one or two. 

The founders regularly talk to and monitor the businesses that raise funds through them. They have built a feedback loop to ensure a smooth information flow. They also do it in case a business misses an instalment, they can recalibrate their monitoring process and thus vet the businesses better in future.

Saeed added that an investor can learn everything there is to learn before investing through biniyog.io since they share all the findings about a business from the assessment process along with the business profile on their platforms. They also share the positives and risks they see for the business. 

"We have been able to earn the trust of our investors and the businesses that work with us. 90% of the businesses we deal with are recurrent, meaning they've come back to us for investment after paying off their first fund," Shabab said. "We have also returned more than Tk3.5 crore as repayment to the investors."