Small-Business Islamic Finance Due-Diligence Checklist
Small-business and community finance can use sale, lease, partnership or benevolent-loan structures, but the label alone does not show who supplies capital, who bears loss or how collections are handled. A due-diligence file helps a borrower, investor or community group test the actual arrangement.
This checklist is general information, not credit, legal, tax, investment or Shariah advice. Verify current registration, signed contracts and professional opinions.
1. Identify every party
Record the funder, intermediary, platform, community organisation, supplier, guarantor and collection agent. State which legal entity signs each contract and receives money.
2. Name the financing structure
Describe whether the arrangement is Murabaha, Ijarah, Musharakah, Mudarabah, Qard or another structure. Map the contracts and cash flows in plain language.
3. Verify the purpose and asset
For asset finance, identify the goods, supplier, purchase price, delivery and ownership sequence. For enterprise funding, state the approved business use and prohibited uses.
4. Reconcile the total cost
List profit, rent, administration, membership, training, collection, insurance or Takaful and late-payment amounts. Show the rand total and payment schedule.
5. Test affordability and seasonality
Use realistic sales, margins and expense timing. Model a delayed customer payment, weak month and equipment failure. Avoid basing repayment solely on optimistic turnover.
6. Allocate business risk
Record who bears asset loss, business loss, negligence, supplier failure and currency movement. Partnership language should align with the actual risk and profit rules.
7. Review security and guarantees
List pledged assets, sureties, cessions and guarantors. Explain enforcement and release. Family or group guarantees should not be treated as a formality.
8. Examine group-liability rules
Where members support one another, record responsibility for missed payments, removal, replacement and disputes. Protect members from informal coercion and undisclosed obligations.
9. Review late payment and hardship
State notices, collections, restructuring, default amounts and dispute routes. Confirm how any charitable late-payment amount is handled and evidenced under the adopted Shariah method.
10. Verify regulation and complaints
Check relevant National Credit Regulator, FSCA, company or co-operative records for the actual entity and service. Record the ombud, regulator or court process named in the contract.
11. Keep Shariah evidence
Retain the approval, named adviser or board, contract set, review date and breach process. Ask how the provider monitors use of funds and non-compliant income.
12. Build a decision and monitoring file
Store the application, quote, cash-flow test, contracts, proof of disbursement, statements and repayment evidence. Review arrears, complaints and outcomes rather than only amounts advanced.
Official starting points
Practical outcome: the participant should be able to explain the parties, structure, total cost, loss allocation, security, hardship process and Shariah evidence before accepting finance.One-page term summary
Prepare a page showing the amount or asset financed, customer contribution, provider contribution, total scheduled cash payments, security, expected completion date and the people authorised to change terms. Attach the exact clauses supporting each entry. If the provider cannot reconcile the summary to its contracts and statements, pause the transaction until the difference is resolved.
