From extractive models to shared ownership and values-based capital.

For decades, impact investors have worked to align capital with conscience — deploying resources toward businesses that address social, community, and environmental challenges. In the modern era, socially responsible investment gained prominence through campaigns such as the divestment movement against apartheid South Africa. Many early leaders in this field — including Catholics, Quakers, and Mennonites — sought to align their faith-based values with their investing.​

Organizations like Investors’ Circle (now celebrating 33 years), Shared Interest (formally registered in 1994), and Toniic (formally a decade ago, though collaborations go back further) helped pioneer collective investing in mission-driven startups and high-growth companies.

Today, impact investing continues to grow rapidly. According to the GIIN, the global market reached approximately $1.57 trillion USD in 2024, with a 21% annual growth rate. Many (though not all) of the investment vehicles in use mirror conventional structures — in language, terms, and paperwork. This was initially a strategic move to “normalize” impact investing, making it more accessible and understandable for mainstream investors.

Image Courtesy of Wasil Foundation

However, those conventions are often rooted in traditional banking and venture capital frameworks — emphasizing rapid growth, high returns, and punitive provisions for unmet targets. In short, standard investment still tends to prioritize the bottom line. It doesn’t necessarily reflect values such as long-term community resilience, environmental sustainability, or mission integrity — the triple bottom line.

Could impact investing expand faster — and more equitably — with investment structures and terms that better reflect the values that drive it? Could we move from “extractive” to “collective” financing models? After all, many of us pursue impact investing because of our values, our beliefs — our faith.

This article explores lessons from Islamic finance and shared ownership models that may offer more ethical, flexible, and mission-aligned pathways to capital. Our goal is to spark dialogue and exploration within the impact investing community.

Why conventional startup investment falls short

Using standard legal structures to fund socially responsible startups is an important step — but often not enough. Conventional models can produce misaligned incentives, pressure to scale unsustainably, founder dilution or marginalization, undervaluing of employee contributions, and disconnection from customers and suppliers. These models may prioritize profits over purpose and create tensions for impact-focused entrepreneurs.

If we start from a values-first perspective, what alternative models better align stakeholders and help us achieve broader goals — win-win-win outcomes for investors, founders, employees, customers, and the planet?

Islamic finance and shared-risk models offer useful lenses to explore those possibilities.

Islamic finance: Risk-sharing with ethical roots

The principles of Islamic finance are not strange or inaccessible — they are simply less familiar in Western financial circles. In fact, core values of fairness and opposition to usury are shared across Abrahamic faiths. When Jesus overturned the tables of the moneylenders in the temple, it was a rejection of exploitative finance. In the U.S., most states have anti-usury laws — including our own, New Mexico.

Muslim Americans make up about 1.1% of the U.S. population (Pew Research), and while Sharia-compliant finance constitutes a small share of global assets (~1%), it is growing quickly — with a compound annual growth rate of 9%, according to Global Finance Magazine. Moreover, Islamic banks are often praised for their strong performance in times of financial crisis, such as in 2008.

At its core, Islamic finance prohibits making money from money. Instead of charging interest, Islamic banks often acquire an asset — such as property or a business — and lease or sell it to the client, generating profit through fixed payments. This reflects a broader principle of shared risk between lender and borrower.

Islamic finance also incorporates models such as:

• Mudarabah — A profit-and-loss sharing partnership in which one party (the financier or rab-ul-mal) provides capital and the other (mudarib) provides labor. Profits are shared based on a pre-agreed ratio.
• Musharakah — A joint venture in which both parties contribute capital and labor, sharing profits and losses pro-rata. This includes:
  • Diminishing Musharakah — Often used in property purchases, the bank gradually sells its equity share to the client over time.
  • Permanent Musharakah — A long-term venture with no set end date, used to finance ongoing projects.

Real-world applications

Pakistan — Wasil Foundation

This microfinance institution provides Sharia-compliant financing to smallholder farmers using products like Murabaha and Diminishing Musharakah. Their mission is to reduce poverty through Islamic financial services and enterprise development.

United States — University Bank (Michigan)

After recognizing unmet demand in a Muslim-majority area, University Bank launched Islamic home financing in 2003. Demand grew steadily — even as conventional lending plateaued — demonstrating market viability.

The principles of Islamic finance are not strange or inaccessible — they are simply less familiar in Western financial circles.

Shared ownership and Transform Finance

Founded in 2013, Transform Finance works to make capital a force for good. Its principles closely align with Islamic finance, emphasizing:

1. Community participation in governance and ownership;
2. Value creation that exceeds value extraction;
3. Fair distribution of risk and reward.

Their recent focus on Shared Ownership advocates for broader stakeholder participation — beyond investors and founders — so that employees, customers, and communities also benefit from the value they help create. This is a direct challenge to the concentration of ownership in conventional equity models.

What alternative models better align stakeholders and help us achieve broader goals?

Opportunity for investors

These models — Islamic finance, shared ownership, and mission-aligned alternatives — offer multiple benefits:

• Diversification and risk-sharing;
• Stronger alignment with environmental and social values;
• Inclusion of previously excluded founders, such as those averse to debt or dilution.

No model is perfect — all financial structures have trade-offs. But the point is not to replace one standard with another. Instead, we invite the impact community to reflect: What can we learn from these models? Can we rewrite our legal templates and investment agreements to better reflect our values?

To adapt a familiar quote: If we always do what we’ve always done, we’ll always get what we’ve always had.

If the future of finance is values-driven, then we must also reimagine the terms, conditions, and documents that shape how capital flows. If this feels too complex to take on alone — that’s because it is. Let’s work together.