Quora Answer: How Does Shari’ah Create an Interest-Free Economy, That Challenges Conventional Financial Systems?

 The following is my answer to a Quora question: “How does shari’ah propose to create an interest-free economy, and what challenges does this pose to conventional financial systems?”

The so-called interest-free economy is a fiqh problem, not a shari’ah solution.  The question contains two errors.  The first is terminological.  The second is foundational.

Shari’ah — الشَّرِيعَة — is the divine law as revealed.  It does not propose economic systems.  It does not draft banking regulations.  It does not issue fatawa on derivative instruments.  Shari’ah is the name of the system.  The human science of deriving rulings from the sources of shari’ah is called فِقْه (fiqh) — Islamic jurisprudence.  Economic transactions fall under the sub-discipline of فِقْه الْمُعَامَلَات (fiqh al-mu’amalat) — the jurisprudence of transactions.  An interest-free economy is a fiqh proposal, not a shari’ah one.  This distinction matters because fiqh is a human enterprise, subject to scholarly disagreement, methodological variance, and historical revision.  Calling it shari’ah elevates a contested jurisprudential position to the status of divine revelation.  This is the category error that produces the overconfidence visible in Islamic finance marketing.

The second error is foundational.  The fuqaha’ — the classical jurists — have not agreed on the definition of رِبَا (riba’).  They have not agreed on its application to modern financial instruments.  They have not agreed on whether all forms of interest constitute riba’ or only those that involve the specific element of ظُلْم (zhulm) — oppressive exploitation — that the classical texts identify as the moral basis of the prohibition.

The Definition Problem

The classical sources identify two categories of riba’.  رِبَا الْفَضْل (riba’ al-fadhl) — excess in exchange transactions involving specified commodities — is relatively well-defined in the ahadits literature.  رِبَا النَّسِيئَة (riba’ an-nasiyyah) — the increase that accrues from a deferral of payment — is the category relevant to modern banking, and this is where the jurisprudential disagreement is most consequential.

The Hanafi school applied the prohibition of riba’ an-nasiyyah to transactions involving commodities of the same genus (jins) with a common effective cause (‘illah).  The position of scholars, including Muhammad Amin ibn ‘Umar ibn ‘Abd al-‘Aziz ‘Abidin ad-Dimashqi in the Radd al-Muhtar ‘ala ad-Durr al-Mukhtar Sharh Tanwir al-Abswar wa Jami’ al-Bihar, treats the prohibition as applying to specific conditions, not to the mere presence of a time-value component in a commercial transaction.  Muswthafa Ahmad ibn Ahmad az-Zarqa — the 20^th century’s most rigorous Hanafi jurist on financial transactions — argued that commercial transactions involving transparent, regulated, competitively priced returns do not meet the classical definition of riba’ azh zhulm.  The element of oppressive exploitation is the moral core of the prohibition.  A regulated bank charging a disclosed, market-rate interest on a commercial loan is not the moneylender of 7^th-century Arabia charging compound interest to a farmer in a famine.

The Islamic Fiqh Academy of the Organisation of Islamic Cooperation has issued multiple conflicting resolutions on banking instruments over the decades.  The same institution that prohibits one structure endorses another that achieves economically identical outcomes through different contractual architecture.  This is not jurisprudence resolving a question.  It is jurisprudence rearranging furniture.  We should take their credibility with some salt – whether a pinch or a bucket, according to the individual.

The Swukuk Precedent

The most damaging case study for the credibility of Islamic finance jurisprudence is the Dana Gas PJSC case of June 2017.  Dana Gas — a UAE energy company — had issued US$700 million in swukuk structured through a mudharabah profit-sharing arrangement.  When the company faced a liquidity crisis, it declared its own instruments non-shari’ah-compliant as a debt-avoidance mechanism.  The English High Court rejected this position outright.  But the episode revealed the foundational problem: the shari’ah compliance certification that investors had relied upon had no legal force that could prevent an issuer from retroactively disputing its own product’s compliance.

Muhammad Taqi al-‘Utsmani — the most prominent contemporary authority on Islamic finance and the scholar most responsible for developing modern swukuk structures — had warned as early as 2008 that 85 per cent of swukuk in the market were not shari’ah-compliant.  The scholars certifying these instruments were certifying form, not substance.  This is not a niche criticism.  It comes from the person who built the architecture.

The Scale Disparity —Why Growth Rates Mislead

The Islamic finance industry regularly publishes growth rate figures that create a misleading impression of competitive relevance.  The global Islamic finance industry grew at 10 to 12 per cent annually between 2020 and 2025, compared with conventional banking growth of 6 to 8 per cent annually over the same period.  Islamic finance is growing faster.  The conclusion that many draw from this — that Islamic finance is closing the gap with conventional banking — is arithmetically wrong.  The global conventional banking system holds US$183 trillion in total assets.  The global Islamic finance industry — including Islamic banking, swukuk, takaful, Islamic funds, and Islamic microfinance across all jurisdictions — manages US$4.5 trillion.  This is 2.4 per cent of conventional banking assets.

Apply the growth rates.  If Islamic finance grows at 12 per cent annually and conventional banking grows at 7 per cent annually, Islamic finance adds US$540 billion in assets in year one.  Conventional banking adds US$12.8 trillion in the same year.  The absolute gap — US$178.5 trillion — widens by US$12.3 trillion in year one alone.  After ten years of this dynamic, Islamic finance reaches US$14 trillion.  Conventional banking reaches US$360 trillion.  The absolute gap has grown from US$178.5 trillion to US$346 trillion.  Islamic finance’s share of global banking has increased from 2.4 per cent to 3.9 per cent.  This is what growing from a low base means.  The percentage growth rate is higher.  The absolute distance is widening.  Islamic finance is running faster on a track where the finish line moves away faster than it can run.

The global swukuk market — the flagship instrument of Islamic capital markets — has US$900 billion in outstanding issuance.  The global conventional bond market has US$130 trillion.  The swukuk market is 0.7 per cent of the conventional bond market.  At a 15 per cent annual growth rate for swukuk against a 5 per cent growth rate for conventional bonds, the swukuk market reaches US$3.6 trillion in ten years.  The conventional bond market reaches US$212 trillion.  The gap grows from US$129 trillion to US$208 trillion.

Malaysia provides the most favourable case study.  At 34 per cent Islamic banking penetration — the highest of any major economy, achieved over four decades of deliberate government policy, regulatory development, and institutional infrastructure building — Islamic banking accounts for one-third of Malaysian banking assets.  Outside Malaysia, Indonesia, the Gulf Cooperation Council, and a handful of other Muslim-majority markets, Islamic banking penetration is typically below 5 per cent even in countries with significant Muslim populations.

The Reskin Problem

The reason Islamic banking cannot close this gap is not primarily scale.  It is substance.  A murabahah home financing arrangement — the standard Islamic alternative to a mortgage — involves the bank purchasing the property and selling it to the customer at a marked-up price, payable in instalments.  The economic outcome is identical to a conventional mortgage.  The bank’s return is calculated using the same actuarial methods as conventional interest.  The pricing benchmarks against conventional interest rates.  The Islamic structure replaces the word “interest” with the word “profit.”  It introduces additional legal steps that add transaction costs without changing the economic substance.  The customer pays more for the financing than the asset’s cash price.  The bank earns a return on the capital deployed.  This is the definition of interest-bearing lending, expressed through a different contractual vocabulary.

The top 20 shari’ah scholars globally held 621 board positions across the Islamic finance industry in a 2019 study.  These scholars are paid by the institutions whose products they certify.  Their certification creates the reputational product — “shari’ah-compliant” — that allows the institution to market to religiously observant customers at a premium.  The independence that compliance assurance requires is structurally compromised by the commercial relationship it serves.

The Assessment

The fuqaha’ have not agreed on the definition of riba’.  They have not agreed on its application to modern finance.  The foundational principle of أَصَالَةُ الْإِبَاحَة (aswalat al-ibahah) — that everything is permissible unless proven prohibited — supports a permissive reading of commercial finance that large sections of the Islamic finance industry have never adequately engaged with, because it would undermine the product differentiation their business model requires.  Islamic banking is not a challenge to conventional banking.  It is a premium-priced imitation of conventional banking marketed to customers whose religious identity creates a willingness to pay more for a structurally identical product wearing Arabic labels.

The growth rate headlines are real.  So is the arithmetic.  At current trajectories, Islamic finance will never exceed 5 per cent of global banking assets within any planning horizon that matters to anyone operating today.  The system that claims to replace conventional banking with a different model cannot agree on what its model prohibits, certifies products its own architects consider non-compliant, and prices its instruments against the benchmark it claims to reject.

The shari’ah-compliant label is branding.  The product underneath it is conventional finance with additional paperwork and higher fees.  This is not a secret.  It is the documented, peer-reviewed, and judicially tested reality of an industry that has spent four decades building a façade and calling it a system.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code

Indonesia’s Gas Cut was a Strategic Own Goal with Regional Consequences

Indonesia set out to demonstrate resource leverage over Singapore.  It demonstrated instead that Singapore had spent a decade making that leverage irrelevant.  This outcome was not inevitable.  It was the predictable consequence of a government that sidelined the people who would have predicted it.

The Cabinet That Produced This Decision

Prabowo Subianto’s cabinet is not a technocratic government.  It is a political settlement.  The 48-minister cabinet announced in October 2024 accommodated the parties of the Prabowo coalition, the military networks that delivered his electoral victory, and the business interests aligned with his administration.  Competence was a secondary criterion.  Loyalty was the primary one.

Bahlil Lahadalia, Indonesia’s Minister of Energy and Mineral Resources and Chairman of the Golkar party, exemplifies this appointment logic.  Bahlil’s background is in youth entrepreneurship associations and political campaigning — he served as Chairman of the Indonesian Young Entrepreneurs Association from 2015 to 2019 before Joko Widodo appointed him as Investment Coordinating Board head as a political reward.  A CELIOS survey of Prabowo’s cabinet ranked him 46^th out of 46 ministers.  This is the man who announced, without apparent strategic preparation, that Indonesia would cut gas supplies to Singapore and lecture the world about honouring contracts.

Indonesia has no shortage of competent technocrats and experienced energy diplomats.  The Ministry of Energy and Mineral Resources has career officials who understand contract law, pipeline agreements, bilateral energy relationships, and the long-term consequences of supply disruptions for Indonesia’s international credibility.  Those officials knew this was a bad idea.  They were not the ones making the announcement.  The decision to cut Singapore’s gas supply was conceived as domestic political theatre — a visible assertion of resource nationalism that plays well to Prabowo’s base.  The audience was Indonesian voters, not Singapore’s Energy Market Authority.  Nobody in the decision-making chain appears to have modelled Singapore’s response, assessed the contract exposure, considered the FDI implications, or consulted the career diplomats who would have flagged each of these consequences before the announcement went out.

Danantara and the Resource Nationalism Ideology

The gas cut cannot be understood in isolation from Danantara Sumberdaya Indonesia — the state-owned enterprise established by Prabowo in May 2026 with a special mandate to manage and oversee transactions involving strategic natural resource exports, including nickel products, minerals, and energy commodities.  Danantara is the institutional expression of Prabowonomics — the proposition that Indonesia’s natural wealth has been systematically undervalued through export to foreign buyers, and that centralising control of strategic resource exports through a state entity will capture more value for Indonesia.  The gas cut to Singapore is this ideology applied to the energy sector: redirect resources from export markets to domestic use, demonstrate that Indonesia controls its own resource destiny, and extract political capital from the assertion of sovereignty.

The ideology has a fatal flaw.  It assumes that the counterparties to Indonesia’s resource relationships — Singapore, Japan, South Korea, China, the EU — will continue to accept Indonesia as a reliable partner despite the demonstrated willingness to override commercial contracts for domestic political reasons.  This assumption is wrong.  It was wrong when Indonesia banned coal exports in January 2022.  It was wrong when it banned palm oil exports in April 2022.  It was wrong when it applied export restrictions to nickel that produced a WTO ruling against Indonesia.  It is wrong now.

The Singapore episode is a setback for the Danantara model because it illustrates, in public and in real time, the mechanism by which resource nationalism destroys the credibility it claims to build.  A country that controls critical resources has leverage only if the counterparty believes it will honour commercial commitments.  Once that belief is lost — once the counterparty has built alternative supply infrastructure specifically to eliminate the dependency — the leverage disappears.  Indonesia has not demonstrated resource sovereignty.  It has demonstrated resource unreliability.  These are opposite things.

The Cronyism Dividend

Indonesia’s Foreign Ministry, its career energy diplomats, and its experienced economic technocrats understood the bilateral energy relationship with Singapore in depth.  They understood that Singapore had been reducing its dependency on Indonesian gas for years.  They understood that the 2022 contract renewal had already been negotiated at declining volumes.  They understood that Singapore’s LNG import infrastructure had been specifically expanded to reduce pipeline dependency.  They understood that Singapore would invoke contract law rather than absorb a supply cut quietly.

None of this analysis appears to have reached the decision-making level in a form that changed the outcome.  This is the governance cost of a cabinet organised around political loyalty rather than technical competence.  The people who knew the decision was wrong were not the people making it.  The person making it was ranked last in ministerial competence surveys and appeared to believe that announcing a supply cut to Singapore was a demonstration of strength rather than a provocation that Singapore had already prepared for.

This is not a one-off failure.  It is structural.  A government that has sidelined its technocrats in favour of political allies will continue to produce decisions that confuse domestic political performance with international strategic effectiveness.  The gas cut announcement was domestic political performance.  The international strategic effectiveness was negative.

The Economic Consequences

The damage accumulates on top of a deteriorating baseline.  Net FDI contracted 26 per cent year-on-year in the first quarter of 2026.  Indonesia’s FDI-to-GDP ratio has fallen to 1.61 per cent — one of the lowest among major Southeast Asian economies.  Vietnam attracted US$5.6 billion in foreign investment in the same quarter that Indonesia attracted US$4.7 billion, despite Vietnam’s smaller economy.  Moody’s set Indonesia’s outlook to negative in February 2026, citing policy uncertainty, poor governance, and inadequate revenue collection.  The Jakarta Composite Index fell 11.4 per cent in a single session in October 2026 following the MSCI reclassification proposal.  Net foreign equity outflows reached US$4.9 billion.

The gas cut adds a qualitative dimension to these quantitative data points.  Every foreign investor evaluating Indonesia as an investment destination now has a fresh case study in which the Indonesian government overrode commercial energy contracts for domestic political reasons, had its minister defend the action in terms of contractual technicalities rather than strategic rationale, and failed to anticipate the counterparty’s response.  This case study will appear in investment committee risk assessments for years.  It will raise the country risk premium on every Indonesian infrastructure investment that depends on regulatory stability and contract enforcement.

The people who bear the cost of this premium are not Prabowo or Bahlil.  They are the Indonesian workers whose employment depends on foreign investment that did not come, the Indonesian consumers whose electricity costs reflect the inefficiencies of a state energy sector managed for political rather than commercial objectives, and the Indonesian government whose fiscal position deteriorates as FDI flows redirect to Vietnam, Thailand, and Malaysia — countries that have not spent 2026 demonstrating that their commercial commitments are subject to unilateral revision.

Indonesia’s domestic gas consumption is growing.  The infrastructure bottlenecks in Batam, Bintan, and Sumatra that SKK Migas cited as the reason for the Singapore cut are real.  These are legitimate policy challenges that require serious solutions.  The solution that serious energy policy technocrats would have proposed — investing in domestic distribution infrastructure, managing the pipeline supply reduction through diplomatic channels, providing contractual notice in the form the agreements require — would have achieved the domestic supply objective without the international credibility damage.  That solution was not chosen.  The performance was chosen instead.

The Strategic Implications

For Singapore, the episode confirms the logic of every energy diversification decision it has made since 2010.  The 2028 contract expiry will not produce a renewal on terms that recreate the current pipeline dependency.  Singapore’s nuclear feasibility study — with an IAEA assessment scheduled for 2027 across 19 critical areas — is now a strategic priority rather than a long-term aspiration.  The Australia mutual energy supply agreement, the expanded LNG import capacity, and the fuel stockpile programme are each accelerated by this episode.

For Indonesia, the damage is structural.  The ASEAN Power Grid negotiations — in which Indonesia was seeking to export electricity to Singapore — now occur against a backdrop of Singapore’s demonstrated willingness to pursue contractual remedies and its stated acceleration of domestic energy infrastructure.  The ASEAN Power Grid requires long-term supply commitments honoured regardless of domestic political conditions.  Indonesia has demonstrated this week that it does not meet that standard.

For ASEAN, the episode is a direct challenge to the institution’s viability as a framework for regional energy cooperation.  Indonesia presents itself as ASEAN’s natural leader — largest economy, largest population, anchor of regional stability.  The gas cut, and its management, have broken the specific narrative that the anchor state is a reliable partner.  Vietnam, Thailand, Malaysia, and the Philippines are drawing conclusions about the terms on which they will accept Indonesian energy infrastructure proposals.

The MSCI reclassification threat was about Indonesia’s capital markets reliability.  The Danantara controversy was about institutional governance.  The gas cut to Singapore is about bilateral contract reliability.  These are three different manifestations of the same underlying problem: a government that prioritises political performance over institutional credibility, and that has placed people in critical positions based on loyalty rather than competence.

The Indonesian people deserve a government that deploys their country’s resource wealth to build long-term economic relationships that generate employment, investment, and fiscal stability.  What they have is a government that turns off gas pipelines to Singapore, waits for Singapore to shrug, and then holds a press conference explaining that it technically did not breach its contract.  Indonesia fired its resource nationalism weapon.  The target moved on.  The weapon damaged its owner.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code

Quora Answer: How Do Venture Capital Firms Make Money If 90% of Investments Fail?

 The following is my answer to a Quora question: “How do venture capital firms make money if 90% of investments fail?”

The question contains its own answer.  Venture capital does not need 90 per cent of investments to succeed.  It needs one to succeed spectacularly enough to make the other nineteen irrelevant.  This is not a flaw in the model.  It is the model.

The Mathematics

The standard venture capital fund structure assumes a portfolio of 20 investments.  The fund manager — the general partner — raises capital from institutional investors and high-net-worth individuals — the limited partners — and deploys it across the portfolio over a three- to five-year investment period.  The power law of venture returns dictates the outcome.  Assume a US$100 million fund deployed across 20 companies at US$5 million each.  Of 20 investments, 10 fail and return zero.  6 return between 0.5x and 2x — they do not fail outright, but they do not generate meaningful returns.  3 return between 2x and 5x — modest successes.  One returns 100x.

The one company that returns 100x on a US$5 million investment returns US$500 million.  The three modest successes return between US$10 million and US$25 million each, contributing US$50 million.  The six mediocre performers return US$30 million.  The ten failures return zero.  Total fund return: US$580 million on a US$100 million fund — a 5.8x return before fees.  The general partner takes a 20 per cent carried interest — the “carry” — on profits above the hurdle rate, typically 8 per cent.  The limited partners receive the remainder.  This is why the 100x outcome is not a bonus.  It is the entire thesis.  Without it, the fund returns 0.8x — a loss after fees and the cost of capital.

The Return Expectations by Market

The expected return profile varies significantly by stage and sector.

Seed-stage technology startups — the earliest bets, typically US$500,000 to US$2 million — carry the highest failure rate and the highest potential multiple.  The venture firm expects to lose its investment in 60 to 70 per cent of cases.  It expects 30x to 100x returns from the survivors.  Y Combinator’s early investments in Airbnb (US$20,000 for 6 per cent, now worth billions) and Dropbox (similar structure) represent the archetype.

Series A technology — US$5 million to US$20 million — carries a lower failure rate but a compressed multiple.  The expectation is 10x to 30x on the winners, with a 40 to 50 per cent failure rate.  The fund needs fewer enormous outliers to generate returns.

Growth-stage venture — US$20 million to US$100 million — operates on a 5x to 15x return expectation with a lower failure rate still.  At this stage, the company has product-market fit.  The question is execution, not survival.  The failure rate drops to 20 to 30 per cent.

SaaS specifically — Software-as-a-Service companies are the preferred venture category because of their recurring revenue model, high gross margins (typically 70 to 80 per cent), and the compounding nature of their customer acquisition.  A SaaS company growing at 100 per cent annually doubles its revenue each year.  At year five, it is 32 times its original size.  The multiple expansion from entering at a 5x revenue multiple and exiting at a 10x revenue multiple on a company that grew 32x produces a return of 64x.

Deep tech and biotech — longer development cycles, binary outcomes (FDA approval or not; the technology works or it does not), and capital-intensive development produce a specific return profile: higher failure rate, longer time to exit, but potentially unlimited upside if the technology succeeds.  Returns of 50x to 300x are documented for successful biotech exits.  The failure rate exceeds 80 per cent.

Real-World Cases

Sequoia Capital invested US$60 million in WhatsApp across multiple rounds.  Facebook acquired WhatsApp for US$19 billion in 2014.  Sequoia’s return: US$3 billion — a 50x return on its investment.  That single investment covered the losses of an entire fund.

Benchmark Capital invested US$5 million in Uber in 2011 for 20 per cent of the company.  Uber’s IPO in 2019 valued Benchmark’s stake at US$7 billion — a 1,400x return.  One investment.  One fund.  One outcome that defines the firm’s entire history.

Andreessen Horowitz invested US$250,000 in Instagram in 2010.  Facebook acquired Instagram for US$1 billion in 2012.  Andreessen Horowitz’s return: US$78 million on a US$250,000 investment — a 312x return in 18 months.

Accel Partners invested US$12.7 million in Facebook’s Series A in 2005 at a valuation of US$100 million.  Facebook’s IPO in 2012 valued Accel’s stake at US$9 billion.  That investment funded Accel’s operations for a decade.

The common thread is not diversification.  It is concentration in the one or two companies within a portfolio that the fund manager correctly identified as having the potential for category-defining scale.

How a Venture Fund is Constituted

The general partner — the venture firm — establishes a limited partnership structure.  The general partner contributes 1 to 2 per cent of the fund’s capital — the GP commitment — which aligns their interests with the limited partners.  The limited partners contribute the remaining 98 to 99 per cent.  The fund has a defined life — typically 10 years, with two one-year extension options.  Years 1 to 5 are the investment period.  Years 5 to 10 are the harvesting period — the general partner works the portfolio toward exits.

The general partner charges a management fee — typically 2 per cent of committed capital annually during the investment period, declining to 1.5 per cent thereafter.  On a US$100 million fund over 10 years, this generates US$17 million in management fees regardless of performance.  This is how venture firms pay their staff, rent their offices, and fund their operations.  The carry is how they get wealthy.  The carry — 20 per cent of profits above the hurdle rate — is the primary incentive mechanism.  On a US$100 million fund generating US$580 million in returns, the profit above the 8 per cent hurdle rate is US$400 million.  The general partner’s 20 per cent carry is US$80 million, split among the partnership’s principals.

How the Fund is Disbursed

Capital calls rather than upfront disbursement characterise the LP experience.  The limited partners do not transfer all committed capital on day one.  The general partner issues capital calls — requests for a portion of committed capital — as investments are made.  A LP who commits US$10 million to a fund may receive capital calls of US$1 to US$2 million per year over five years.  This structure allows limited partners to manage their liquidity.  It also means that venture funds operate with uncalled capital — committed but not yet deployed — that represents a contingent liability for the limited partner rather than an immediate cash outlay.

How the Fund Recovers Its Investment

The exit mechanisms are three: initial public offering, merger and acquisition, and secondary sale.

The IPO — listing the portfolio company on a public exchange — provides the most liquid exit but also the longest timeline.  The venture fund receives shares in the public company, subject to a lock-up period typically of 180 days, after which it can sell into the public market.  Uber, Airbnb, DoorDash, and Snowflake are examples of venture-backed companies that provided IPO exits.

The M&A exit — the portfolio company is acquired by a larger company — provides the most certain exit but at a negotiated valuation.  Instagram, WhatsApp, YouTube, and LinkedIn are examples of venture-backed companies acquired before IPO.  M&A exits tend to be faster, more certain, and at lower multiples than IPO exits — but in a market where IPO windows close, they represent the pragmatic alternative.

The secondary sale — the venture fund sells its stake to another investor, typically a growth equity firm or a sovereign wealth fund, before a public exit — has become an increasingly important mechanism as companies stay private longer.  The average time from founding to IPO for a US technology company increased from 4 years in 1999 to 12 years by 2020.  Secondary sales allow early-stage investors to realise returns without waiting for a public exit that may be a decade away.

The Assessment

Venture capital is the only asset class where the professional’s primary job is to be wrong 90 per cent of the time and still generate superior returns.  The model works because the mathematics of power law distributions — where one outcome dominates the entire distribution — is structurally different from the bell curve distributions that govern most asset classes.  In a bond portfolio, no single bond can return 100x.  In a public equity portfolio, no single stock can return 1,400x in 8 years.  In a venture portfolio, both are documented outcomes.

The failure rate is not a problem to be managed.  It is a feature of the model — because the companies willing to take the risks that produce 100x returns are the ones that might fail.  A company unwilling to take those risks is unlikely to return more than 3 to 5x — insufficient to justify the illiquidity, the management cost, and the risk premium that venture capital commands.  The 90 per cent failure rate and the 100x return are the same phenomenon, viewed from different vantage points.  The venture capitalist who refuses to invest in companies that might fail will never invest in companies that might return 100x.  This is why venture capital is not an investment model that most investors should attempt to replicate — and why the ones who do it well are considerably wealthier than the ones who merely attempt it.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code

Quora Answer: What is a Comparative Analysis between Takaful & Conventional Insurance?

The following is my answer to a Quora question: “How can you do a comparative analysis between takaful and conventional insurance?”

The question of how to compare takaful with conventional insurance assumes they are equivalent products serving equivalent purposes through different structural mechanisms.  They are not.  Takaful and conventional insurance share a surface resemblance — both involve the pooling of risk — and diverge at every level that matters to the policyholder: legal structure, fund architecture, investment mandate, cost loading, and long-term performance.  A fair comparison requires understanding what each structure is actually doing and why — and then measuring the outcomes rather than the intentions.

What is Takaful?

Takaful is a mutual risk-sharing structure in which participants contribute to a pooled tabarru’ fund — a donation rather than a premium in the commercial sense — and the operator manages the fund as either a wakil (agent) for a fee or as a mudharib (profit-sharing partner).  Underwriting surpluses, when they exist, are returned to participants rather than retained by shareholders.  The investment portfolio is restricted to shari’ah-compliant instruments — swukuk, Islamic equity funds, and shari’ah-screened fixed income — which excludes conventional bonds, interest-bearing instruments, and equities in prohibited sectors.

The Fiqh Academy of the Organisation of Islamic Cooperation, in Resolution No. 9 (2/5) at its Fifth Session in Amman in December 1985, explicitly approved cooperative insurance structured as tabarru’ as shari’ah-compliant while prohibiting commercial insurance.  This ruling remains the foundational reference for the takaful industry.  The jurisprudential coherence does not, however, translate into financial equivalence with conventional insurance.  It translates into a different risk-return profile, a narrower investment universe, a more complex cost structure, and — as the data consistently demonstrates — lower long-term returns.

The Structural Problems

The first structural problem is the restricted investment mandate.  Takaful funds invest in shari’ah-compliant instruments.  The global swukuk market —US$850 billion in outstanding issuance as of 2025 — is smaller, less liquid, and more concentrated than the conventional bond market.  The shari’ah-screened equity universe excludes financial services companies, conventional banks, tobacco, alcohol, entertainment, and other sectors that have historically been among the strongest contributors to equity market returns.  A CAMEL-based analysis of Malaysian takaful and conventional insurance companies over the period 2019 to 2024 found that conventional insurers exhibit higher profitability and capital strength, while takaful operators demonstrate stronger capital buffers, liquidity, and operational efficiency.  The takaful structure is efficient at managing its constrained universe.  It is structurally incapable of accessing the returns that the unconstrained universe generates.

The second structural problem is the cost architecture.  The takaful operator charges a wakalah fee — typically 20 to 35 per cent of contributions — for managing the fund.  In the mudharib model, the operator takes a share of investment returns in addition to the management fee.  Shari’ah board fees, audit costs, and compliance costs add further layers.  These costs sit on top of the investment management costs that a conventional insurer also incurs.  The takaful participant is paying for the compliance architecture whether it delivers superior financial outcomes.  For example, HSBC Islamic charges 0.40 per cent in management fees versus 0.15 per cent for its conventional equivalent.  Over 30 years on a £50,000 investment at equivalent gross returns, the fee differential compounds to £8,600 in foregone capital — before accounting for the return differential produced by the restricted investment mandate.  The shari’ah compliance premium has a quantifiable cost.  It does not have a quantifiable return premium.

The third structural problem is the shari’ah board’s independence — or the lack thereof.  Shari’ah boards are funded by the institutions whose products they certify.  A 2019 study found that the top 20 shari’ah scholars globally held 621 board positions across the industry.  The scholars who certify the most products are, by definition, the most commercially connected to the institutions whose products they are certifying.  This is not an allegation of corruption.  It is a structural conflict of interest that undermines the independence that genuine compliance assurance requires.  The Dana Gas PJSC case from June 2017 is the anecdote that crystallises this problem.  Dana Gas unilaterally declared its own US$700 million swukuk non-shari’ah-compliant during a liquidity crunch — a claim the English High Court rejected outright.  If an issuer can dispute its own product’s shari’ah status the moment repayment becomes inconvenient, the certification was not the fixed, load-bearing guarantee that participants assumed they were paying a premium for.

The Performance Comparison

AIA Singapore’s participating fund generated a net investment return of 10.9 per cent in 2025, 7.0 per cent in 2024, and a 10-year average of 4.97 per cent.  Total participating fund assets stood at S$33,312 million as of 31^st December 2025, with S$622 million in bonuses and dividends declared for the year.

I am using Malaysia-specific data as it is the most available because Malaysia has the most developed takaful market in Southeast Asia — it accounts for 70 per cent of global family takaful premiums and has the longest track record of regulated takaful operators.  Singapore’s takaful market is smaller and less developed, with fewer publicly available fund performance datasets.  The problem is that Singapore takaful operators do not publish fund performance data with the same granularity as Malaysian operators or AIA Singapore’s participating fund.  MAS does not require takaful-specific fund performance disclosure in the same format as the participating fund updates that AIA Singapore publishes.

Malaysian family takaful operators recorded a return on assets of 2.5 per cent in the first half of 2025, down from 8.1 per cent in 2024, as equity valuations normalised.  The 2024 figure of 8.1 per cent reflects the strong Malaysian equity market performance in 2024 rather than a structural improvement in the takaful model.  Family takaful new business growth lagged conventional life insurance in recent years — negative 5 per cent in the first half of 2025 and positive 1 per cent in 2024 — partly due to strong demand and a rebound in investment-linked products, a niche where conventional players have aggressively pursued.

Sun Life Malaysia Takaful’s bond-oriented fund recorded a return of 4.9 per cent in 2025, 4.0 per cent in 2024, 6.6 per cent in 2023, 0.6 per cent in 2022, and negative 3.0 per cent in 2021.  Over the five years, the cumulative return reflects the volatility of a swukuk-heavy portfolio in a rising interest rate environment — with the 2021 and 2022 negative returns demonstrating the downside that the conventional participating fund’s smoothing mechanism is specifically designed to prevent.

The AIA participating fund’s contractual zero-per-cent floor — the mechanism that prevented negative returns in 2022 when the fund itself recorded negative 9.2 per cent on a mark-to-market basis — is the feature that the takaful fund’s structure does not provide in equivalent form.  The participant in a takaful investment fund bears the mark-to-market risk of the underlying portfolio without the smoothing buffer that a conventional participating fund provides.

The Shari’ah Compliance Question

The assumption underlying the takaful comparison is that conventional insurance is not shari’ah-compliant and takaful is.  This assumption is contested at the jurisprudential level.  The classical Hanafi position — as articulated by scholars including Shaykh Muhammad Muswthafa Ahmad az-Zarqa, whose permissive ruling on insurance underpins the minority scholarly position — holds that conventional insurance is not inherently impermissible because the contract structure avoids the specific forms of riba’ and gharar that the prohibition targets.  Insurance policies define contributions, benefits, and claims clearly.  The uncertainty in an insurance contract is not the kind of speculative gharar that the prohibition was designed to address.  It is the kind of actuarial uncertainty that is inherent in any risk-sharing mechanism.

The principle of husn azh-zhan — that everything is permissible unless proven otherwise — governs by default.  A well-structured, MAS-regulated Investment-Linked Policy with sub-funds screened to exclude haram activities achieves the shari’ah objective without the additional cost of a formal takaful structure or the performance compromise of a restricted investment mandate.  The Muslim investor who needs shari’ah-compliant investment exposure does not need takaful to achieve it.  They need a conventional insurance wrapper with a shari’ah-screened fund selection.  The compliance outcome is identical.  The cost and performance outcomes are not.

The Honest Comparison

A comparative analysis between takaful and conventional insurance produces the following conclusions.

On jurisprudential grounds, takaful is designed for shari’ah compliance and carries the institutional endorsement of the Fiqh Academy.  On jurisprudential grounds, the permissibility of conventional insurance under the classical Hanafi position means that takaful’s shari’ah advantage is narrower than its proponents claim.

On financial grounds, the restricted investment mandate, the additional cost layers, and the historical return data consistently favour conventional insurance when measured over a full market cycle.  The AIA participating fund’s 10-year average of 4.97 per cent, delivered with a contractual floor and a smoothing mechanism that protected policyholders through 2022’s market decline, compares favourably with takaful investment fund returns that are more volatile, more exposed to sukuk market dynamics, and more constrained in their ability to access the full range of global investment opportunities.

On structural grounds, the shari’ah board independence problem, the Dana Gas precedent, and the multiple-board shopping phenomenon undermine the confidence that the takaful compliance premium is purchasing independent oversight rather than commercially convenient certification.

The investor who insists on takaful for religious conviction deserves a clear-eyed presentation of these trade-offs.  The investor who is considering takaful because someone told them conventional insurance is haram deserves an equally clear-eyed presentation of the jurisprudential debate — including the positions that do not appear in the marketing materials of takaful operators.  The comparison is not straightforward.  But the data is.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code

Quora Answer: Can India Defeat China in a Full-Fledged War?

 The following is my answer to a Quora question: “Can India defeat China in a full-fledged war?”

The question is asked with some regularity on defence forums, in Indian nationalist media, and by people who have confused the size of an army with the ability to deploy it effectively.  The answer is no — but the more relevant answer is that neither side will attempt to find out, because the economic, logistical, and geopolitical costs of a full-scale India-China war are prohibitive for both parties.

This is not a statement about Indian military capability in isolation.  It is a statement about what war between two nuclear-armed, geographically adjacent, economically interdependent states with 2.8 billion people between them would involve.

The Border Problem

The Line of Actual Control runs for 3,488 kilometres through some of the most operationally hostile terrain on earth.  The Ladakh, Himachal Pradesh, and Arunachal Pradesh sectors present altitudes of 4,000 to 5,500 metres, temperatures reaching minus 40 degrees Celsius in winter, and logistics challenges that make normal supply chain management look straightforward.

The 2020 Galwan Valley clash — in which Indian and Chinese soldiers engaged in hand-to-hand combat with rocks and improvised weapons, killing at least 20 Indian soldiers and an unconfirmed number of Chinese soldiers — illustrated the nature of the border environment.  Both sides had deployed troops to the same ridgeline.  Neither side used firearms, because both understood that escalation beyond conventional fisticuffs would trigger a sequence neither government wanted.

The 1962 Sino-Indian War remains the definitive reference point.  China inflicted a decisive defeat on Indian forces in this terrain, advanced rapidly, achieved its territorial objectives, and then unilaterally withdrew.  It had no interest in holding the territory.  It had an interest in demonstrating that Indian military posturing on the border would be met with overwhelming response.  China is now the defender with superior logistics and pre-positioned forces in Ladakh.  The 1962 dynamic has reversed — and not in India’s favour.

The Pakistan Precedent: Extrapolating the Military Problem

The most useful data point for assessing Indian military capability against China is not the 1962 war.  It is the 2019 Balakot crisis and its aftermath.  In February 2019, following the Pulwama attack, the Indian Air Force conducted airstrikes against what it described as a Jaish-e-Mohammed training facility in Balakot, Pakistan.  The following day, the Pakistan Air Force responded with a counter-incursion.  In the aerial engagement, the Indian Air Force lost a MiG-21 Bison — a Soviet-era aircraft first designed in 1955 — to a Pakistani F-16.  Wing Commander Abhinandan Varthaman was captured after ejecting over Pakistani territory.

India subsequently claimed it had shot down a Pakistani F-16 during the engagement.  Pakistan denied this.  The United States, which monitors Pakistani F-16 usage under the terms of the sale agreement, found no evidence of a missing Pakistani F-16.  The independent assessment of the engagement — an Indian fourth-generation fighter pilot shot down by a Pakistani aircraft, with no confirmed Pakistani losses — was not the outcome that Indian defence establishment commentary had suggested was likely.

Pakistan operates 76 F-16s, 36 JF-17 Thunder aircraft developed jointly with China, and a force of 425 combat aircraft in total.  The Indian Air Force operates 600 combat aircraft across a force structure that includes Rafales, Su-30MKIs, Mirage 2000s, and ageing MiG-21s still in service.  In a limited aerial engagement against a significantly smaller air force, India failed to achieve air superiority, lost an aircraft to an opponent it had numerical and — in some assessments — qualitative advantage over, and was unable to prevent the Pakistani counter-incursion.

China is not Pakistan.  The People’s Liberation Army Air Force operates 1,700 combat aircraft, including J-20 fifth-generation stealth fighters, J-16 and J-11 fourth-generation heavy fighters, and H-6 strategic bombers with stand-off missile capability.  China’s air defence network — the S-400 systems acquired from Russia, the domestically developed HQ-9 and HQ-16 systems — represents a layered integrated air defence architecture that the Indian Air Force has no demonstrated capability to suppress.  If India struggled to achieve a decisive result against a Pakistani air force that is one-third its size, the extrapolation to a conflict with a Chinese air force that is nearly three times its size, with superior aircraft, superior electronic warfare capability, and superior integrated air defence, is not encouraging.

China’s Strategic Objective: Not Territory but Regime Change

The framing of a China-India conflict as a territorial contest misunderstands China’s strategic objective.  China does not need to seize significant Indian territory.  It does not need to occupy Delhi.  It needs to devastate the Indian economy sufficiently to force a change of government — and then negotiate with the successor government from a position of overwhelming leverage.

This is the strategic logic that China demonstrated in 1962.  It advanced, inflicted a decisive defeat, and withdrew.  The humiliation forced a change in India’s strategic posture that lasted decades.  The modern application of this logic is more sophisticated and more damaging: not a ground offensive, but a coordinated campaign of economic disruption, maritime interdiction, and cyber warfare that collapses the Indian economy before a single Indian soldier fires a shot.

The maritime dimension is the most asymmetric.  China operates the People’s Liberation Army Navy — currently the world’s largest by vessel count, with 370 ships including 3 aircraft carriers, multiple Type 055 guided-missile destroyers, and a submarine force of 60 vessels.  China has port access across the Indian Ocean rim through the string of pearls infrastructure network: Gwadar in Pakistan, Hambantota in Sri Lanka, Kyaukpyu in Myanmar, Djibouti in the Horn of Africa.

From Gwadar alone, Chinese naval assets can interdict Indian shipping entering and leaving its western ports — Mumbai, Kandla, Nhava Sheva — which handle 60 per cent of India’s import volume.  From the Bay of Bengal approaches, Chinese naval assets operating from Myanmar and the Andaman Sea can interdict Indian shipping to Kolkata, Chennai, and Visakhapatnam.  The Arabian Sea and Bay of Bengal are India’s economic lifelines.  China has positioned itself to threaten both simultaneously.

India cannot reciprocate.  The Indian Navy operates 2 aircraft carriers — INS Vikramaditya and INS Vikrant — against China’s 3, with a fourth under construction.  The Indian Navy’s submarine force numbers 16 conventional submarines and no nuclear-powered attack submarines in operational service.  India’s Arihant-class ballistic missile submarines provide a nuclear deterrent but are not configured for conventional sea denial operations.

More fundamentally, India has no access to Chinese ports.  It cannot blockade Chinese maritime trade.  It cannot threaten Chinese shipping at the source.  China’s maritime trade routes — through the Strait of Malacca, through the South China Sea, to East Asia and beyond — are beyond India’s operational reach with its current force structure.  The maritime asymmetry is total.  China can interdict India’s economic lifelines from pre-positioned bases.  India cannot reach China’s.

The Economic Dependency Problem

India’s imports from China totalled US$101 billion in fiscal year 2023-24 — making China India’s largest import source.  These imports include active pharmaceutical ingredients for 70 per cent of India’s generic drug manufacturing base, electronics components, chemicals, machinery, and solar panels.  A war with China does not merely disrupt trade.  It collapses the supply chain that Indian manufacturing depends on — without a viable alternative at scale.  India’s generic pharmaceutical industry, which supplies 20 per cent of global generic drug exports, depends on Chinese API supply.  A maritime blockade of Indian ports, combined with the supply chain disruption of a war with China, would produce a domestic economic crisis within weeks — not months.

China’s economic exposure to India is real but manageable.  India’s economic exposure to China is structural and irreplaceable at scale.  A government that presided over this economic collapse would not survive the next election.  This is China’s strategic objective: not occupation, but the political implosion of an Indian government that chose confrontation, followed by negotiation with whatever government replaces it.

The Regional Dimension

A full-scale India-China war does not remain bilateral.  Pakistan — which maintains a documented strategic partnership with China, and which shares a disputed border with India across the Line of Control in Kashmir — would face irresistible domestic pressure to exploit Indian military commitments on the northern and northeastern borders.  A two-front war — China on the northern border applying air and economic pressure, Pakistan on the western border applying ground and air pressure in Kashmir — is the scenario that Indian military planners most fear.  The Balakot precedent demonstrates that India cannot achieve decisive results against Pakistan in a limited engagement.  It certainly cannot achieve them in an extended two-front conflict simultaneously.

Bangladesh — whose government has maintained closer ties to China than its predecessor — presents a third dimension.  The Siliguri Corridor, connecting northeast India to the rest of the country, is 22 kilometres wide at its narrowest point.  Any serious military planning must account for this vulnerability.

The Military Readiness Problem

India’s defence procurement record is a documented catalogue of delays, cost overruns, and capability gaps.  The Indian Air Force is authorised for 42 fighter squadrons and operates 30.  The 17-year construction timeline for INS Vikrant illustrates the pace of Indian defence capability development relative to the threat environment.

The inter-service rivalry between India’s Army, Navy, and Air Force — and the Chief of Defence Staff position’s limited authority to impose joint operational discipline — produces an integrated operational capacity that falls short of what the threat requires.

Against a People’s Liberation Army that has invested systematically in joint operations doctrine, anti-access/area denial capabilities, electronic warfare, and terrain preparation for exactly the LAC environment, India’s military readiness gap is documented and is not closing at a pace commensurate with the threat trajectory.

The Diplomatic Reality

The Quadrilateral Security Dialogue — India, the United States, Australia, and Japan — is a consultative forum, not a military alliance.  The United States has no treaty obligation to defend India.  Washington’s strategic interest in India as a counterweight to China does not extend to fighting India’s wars — particularly not a war that India’s own economic dependency on China makes strategically ambiguous.

India’s non-aligned tradition has preserved its strategic autonomy at the cost of the alliance relationships that provide credible deterrence.  China has Pakistan as a formal strategic partner.  India has partners who will express concern, impose sanctions, and hold consultative meetings.  These are not equivalent diplomatic positions.

The Conclusion

China does not need to defeat India militarily.  It needs to demonstrate that the cost of confrontation exceeds the cost of accommodation.  A coordinated campaign of maritime interdiction, economic disruption, aerial attrition, and two-front pressure — coordinated with Pakistan and conducted from pre-positioned bases across the Indian Ocean rim — would achieve this objective without a single Chinese soldier crossing the LAC in force.

The Indian government that presides over the collapse of pharmaceutical supply chains, the interdiction of commercial shipping, and an air force suffering losses to an opponent it cannot reach in return, will not survive the political consequences.  The successor government will negotiate.

India is not losing a war.  It is losing a competition it has not fully acknowledged it is fighting.  The question of whether India can defeat China in a full-scale war is the wrong question.  The right question is whether India has the economic independence, the military readiness, the alliance architecture, and the strategic coherence to deter China from testing the proposition.  On the current trajectory, the honest answer is no.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code