India to Learn More on Islamic Finance, Singh Says

[JayATL]

Question are there also Christians , Hindu, Parsi, jewish etc banks now in India too? what do you think of separation of church and state? I ask because these are not private institutions I gather , rather govt subsidized and backed Islamic banks. Nothing against Islam, but I just don't like govt in the business of any religion.
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http://www.bloomberg.com/news/2010-...rn-more-on-islamic-finance-from-malaysia.html

India's Prime Minister Manmohan Singh said he will ask the central bank to learn more about Islamic finance from Malaysia, which has the world's biggest market for Shariah-compliant debt, or sukuk.

There is no regulated Islamic finance market in India, where Muslims make up about 138 million, or 13 percent, of the 1 billion population, according to the government's 2001 census. A panel headed by Raghuram Rajan, a finance professor at the University of Chicago and former chief economist at the International Monetary Fund, recommended in 2008 that India introduce Islamic banking to attract more capital.

"There have been, from time to time, demands that we should experiment with Islamic banking and I will recommend to the Reserve Bank of India to look at what's happening in Malaysia," Singh said in Kuala Lumpur today.

In Malaysia, 60 percent of the 28 million people are Muslim and Islamic banking assets amount to 337.6 billion ringgit ($109 billion), or 20 percent of the total, the Finance Ministry said in its 2010-2011 economic report Oct. 15.

Sukuk pay asset returns to comply with the religion's ban on interest.

 

[pmaitra]

From whatever little I know about Islamic Finance and Economics, it is based on the objective of charity and not profiteering. Hence, it will probably not be welcomed in the capitalist world we live in today. Even Saudi Arabia makes sure they make profit out of their petroleum sales, so one can guess about the rest of the world.

I would expect someone who has more knowledge in this field to post some detailed analysis, or else, I will try to find some time later and post here.

 

[JayATL]

 

[pmaitra]

I will just post the excerpts from Wikipedia about Modern Islamic Banking, while the rest can be seen at the link at the end of the post:

Modern Islamic banking
Interest-free banking seems to be of very recent origin. The earliest references to the reorganisation of banking on the basis of profit sharing rather than interest are found in Anwar Qureshi (1946), Naiem Siddiqi (1948) and Mahmud Ahmad (1952) in the late forties, followed by a more elaborate exposition by Mawdudi in 1950.[citation needed] The writings of Muhammad Hamidullah 1944, 1955, 1957 and 1962 should be included in this category.[citation needed] They have all recognised the need for commercial banks and their perceived "necessary evil," have proposed a banking system based on the concept of Mudarabha - profit and loss sharing.[citation needed]

In the next two decades interest-free banking attracted more attention, partly because of the political interest it created in Pakistan and partly because of the emergence of young Muslim economists. Works specifically devoted to this subject began to appear in this period. The first such work is that of Muhammad Uzair (1955).[citation needed] Another set of works emerged in the late sixties and early seventies. Abdullah al-Araby (1967), Nejatullah Siddiqi (1961, 1969), al-Najjar (1971) and Baqir al-Sadr (1961, 1974) were the main contributors.[citation needed]

The early 1970s saw institutional involvement. The Conference of the Finance Ministers of the Islamic Countries held in Karachi in 1970, the Egyptian study in 1972, the First International Conference on Islamic Economics in Mecca in 1976, and the International Economic Conference in London in 1977 were the result of such involvement. The involvement of institutions and governments led to the application of theory to practice and resulted in the establishment of the first interest-free banks. The Islamic Development Bank, an inter-governmental bank established in 1975, was born of this process.[10]

The first modern experiment with Islamic banking was undertaken in Egypt under cover without projecting an Islamic image—for fear of being seen as a manifestation of Islamic fundamentalism that was anathema to the political regime.[citation needed] The pioneering effort, led by Ahmad Elnaggar, took the form of a savings bank based on profit-sharing in the Egyptian town of Mit Ghamr in 1963. This experiment lasted until 1967 (Ready 1981), by which time there were nine such banks in country.[11]

In 1972, the Mit Ghamr Savings project became part of Nasr Social Bank which, currently, is still in business in Egypt. In 1975, the Islamic Development Bank was set-up with the mission to provide funding to projects in the member countries. The first modern commercial Islamic bank, Dubai Islamic Bank, opened its doors in 1975. In the early years, the products offered were basic and strongly founded on conventional banking products, but in the last few years the industry is starting to see strong development in new products and services.

Islamic Banking is growing at a rate of 10-15% per year and with signs of consistent future growth.[12] Islamic banks have more than 300 institutions spread over 51 countries, including the United States through companies such as the Michigan-based University Bank, as well as an additional 250 mutual funds that comply with Islamic principles. It is estimated that over US$822 billion worldwide sharia-compliant assets are managed according to The Economist.[13] This represents approximately 0.5% of total world estimated assets as of 2005.[14] According to CIMB Group Holdings, Islamic finance is the fastest-growing segment of the global financial system and sales of Islamic bonds may rise by 24 percent to $25 billion in 2010.[15]
The Vatican has put forward the idea that "the principles of Islamic finance may represent a possible cure for ailing markets."[16]

Link: http://en.wikipedia.org/wiki/Islamic_banking

P.S.: There is a related thread - http://defenceforumindia.com/showthread.php?t=8757&page=1

 

[Ray]

Yusuf is the ideal person who can explain this.

He has explained once on a different forum.

The Dawoodi Bohras, IIRC, follow it in India.

 

[Yusuf]

i am not sure a out how saudis do it or how other "islamic" banks work. I write here about how we the Dawoodi Bohras do business without giving or taking interest.

Verse 64-17 of The Holy Quran 'If you lend unto Allah Qardan Hasana ( a good loan – a loan without Interest), He will multiply it for you and He will forgive you, for Allah is the Most Appreciative , Most Forbearing'

above is the Aayat of Quran which talks about Qardan Hasana (note the hindi and arabic word is similar- Karz which means Loan and hasana means good deed or kind act. Basically a loan given in kind)

It is said that there is Hasanat in both giving and taking Qardan Hasana as it is a "Paak" (clean) way to do business. Both the giver and taker gets Gods bounties.

We have a non profit trust registered with PAN number where all members of the community are welcome to save money in. There is no interest given on the money saved. It is just a savings account for the members. This savings is done in a certain multiple. Say Rs 100 a day, 500 a day or 1000 a day. It is payable on monthly basis by multiplying the days of the month. We follow the Gregorian Calender for this purpose so its 30 or 31 days.
The amount of loan you can get depends on the amount of money you save per day. The one saving 100 a day is eligible for a 100,000 loan. 500 can get 500,000 and 1000 can get 1,000,000 loan. The loan is sanctioned on the guarantee of fellow account holders and usually 4 such guaranters are required. If the loan taker defaults, the one giving guarantee are liable to pay.
The loan duration is fixed. Its 10 months for business loan, 20 months for house renovation or even pilgrimage and 36 months to 60 months for housing.

The scheme can vary like there is another scheme which gives loan amount which is three times the amount saved in your account.
Not everyone needs a loan together so funds are usually there to spare for those who need. You cannot get another loan while you are repaying an existing loan. Post dated cheques for 10 months for business loan or for whatever duration loan is taken has to be issued the day the loan amount is given.

Also, a lot of individuals give interest free loans to those who need. Again the reason being, bounties of God.

Also there are other trusts which give interest free loans against gold and also property.

The thing to note here is that we are a very small but tight knit community so such a thing is possible.

What we also do is some group savings among friends. Say you are 10 friends. Save 1000 or 2000 each a month. so a monthly saving of 20,000 is done. once there is a decent amount, anyone among the friends requiring money can take from this pool and repay in a mutually decided period. I dont think this method can be institutionalized.

We are able to do this as we dont believe in giving or taking interest. Others would find it hard to imagine how you could save large sums without interest. But for us, business is the way to earn money and not interest. So we just dont consider the interest part at all.

 

[Yusuf]

I forgot to mention that a lot of people contribute "fee sabilillah" which means for the sake of God, to the trust. That is grants. it can be any amount. A lot of people do it. There are many who gives hundres, thousands or even lacs to the trust. This helps in adding funds to the pool so that more people can benefit.

 

[Iamanidiot]

Yusuf what you are saying is generally followed in all traditional trader communities.My since iam a thug we do it differently.This only works in communities which understood the value of trust.This may not work in the indian muslim context.Dawoodi Bohras are an exception because they are traders and they know the value of capital for the community as a whole

 

[Yusuf]

JP, that is why i mentioned that its possible because we are a small well knit community.

But i dont think there would be any problem in implementing the system in an institutional manner as well. savings are intrest free, loans are interest free. the staff could be manned by grants or charging a nominal fee from each member.

 

[Iamanidiot]

JP, that is why i mentioned that its possible because we are a small well knit community.

But i dont think there would be any problem in implementing the system in an institutional manner as well. savings are intrest free, loans are interest free. the staff could be manned by grants or charging a nominal fee from each member.

Politicians,Mullahs and Babus should not be custodians to such a system.Who is going to regularly donate for this endeavour?This won't work in the larger community as a whole Yusuf.It will be as much mired in corruption as the waqf boards