Category: articles

The challenge is to make financial inclusion to reach millions of young muslims to receive financial services to the underbanked population.

Ever since Corona-19 effects starts impacting into all our lives, the breaking lines of our economies showing its fundamental flaw.This is primarily due to systematic banking run and financial crises alarming economic recession that will hit most parts of the world. India, in particular, with varied structural adjustment both to the economy and society, the economic wellbeing of people has detoriated as never before. Unemployment in domestic as well as foreign had a cascading effect due to reverse migration. People working in foreign shores drawing hefty amount are force to leave or remain idle or to return home to safety. It is high anticipation that people would prefer to stay local amid the new normal arise. Have the covid-19 stays for long, the local economies has to flourish.The migrant worker, white collar pofessionals would rather seek local employment and new start up. This hold very true for states like Kerala and Andhra Pardesh or places whose major source of household income comes from freign employment especially in Middle East.

Can Interest Free Finance be a Saviour?

The new noraml is local and unconventional with no hype in the maket – no doubt, the big question staring at most is: what does the future hold? Can Interest free finance has a role to play here? I say with certainty looking at how it fared globally as well as in India. It has a potential to accommodate and rebuild their new lives. For Instance, following global financial crises of 2007, interest free finance were resilient alternative to conventional finance. Social finance solution like waqf, zakat and microfinance provided liquidity to scale up their venture. Recently, India’s Shariah-compliant lenders offered moratoriums without extra charges for pandemic-hit debtors while long serving, huge asset holding multinational banks couldn’t able to offer. In addition, most, if not all, sharia complaint lender has been participating in one or the other way in solving basic problems during this pandemic. This is primarily due to inbuild and inherent structure of the whole system has to offer. It is so engrained to be human centric and circular in nature that everyone in the ecosystem will win.

The younger generation is calling for unconventional approaches to solve financial problem by innovation. This group, generally considered as being more sensitive than previous generations, demands wide transparency towards food, lifestyle, finance, labour, health, urban planning, migration, ecology and environment arrangement. crowdfunding platforms, charity fund raising through fintech is getting traction worldwide.

The Potential

Eisar Co-Op Society, a startup registered with the Karnataka Souhardha Shakari Act 1997, modelled a platform to solve new normal financial problems. Founder S M Abud Asif says, “Anyone who needs help to set up a business or just returned from foregin or other domestic places wants to solve their financial problem by availing our membership, we will offer the most affordable solution. Moulana Shafi Shabandri Nadvi commented the importance of sharia complaint ways of handling business and finance.

This Platform will enable the accessibility of asset based projects, the solution which not only balances the fund raising needs of end users but also offers sufficient protection and security for the financial institution.
When the asset/equipment gets financed, around 50 to 70 percent of the profits will be given to the investors. The members will get the remaining sum. It is a win-win for everyone.”
Most of times people have business ideas which are promising but lacks adequate finance and legal support to invest to turn into reality, while depositor wants return through secure investment, Eisar bridges this gap and makes sure alternative financing arrangement are provided.
The members will get all support and even legal help, if needed. The startup also ropes in many similar cooperative socities operating in bhatkal and in around india, share their technical know-how, as to carry forward and help execute the ideas.
We seek to hire interns with dynamic profile who are committed to helping the poor and who share our mission and values
For details, www.eisarfinance.in
For internship opportunities contact
+91 80-73923662

By Abud Asif  SM for TwoCircles.net

When India has so many schemes for the minorities, why does it not help Muslims? This is a question I often ask when I meet social workers, minority and welfare officers and government bureaucrats. The Government of India has taken major steps and set up various programs to uplift backward classes. Then why is it that minority and welfare department schemes remain underutilised despite community needs, the widespread poverty, and unemployment? What explains the lack of quality education and lack of finance facility, especially among Muslims?

On a positive note, Pre and Post-matric scholarship is real support for a student’s tuition fees and the process is streamlined online to reach its targets. The overseas Masters and PhD student are given scholarships up to Rs 10 lakh. Lawyers who have just finished their graduation and are working under any seniors are also provided with monthly stipends. In addition, Seekho aur Kamao skill development schemes have been instrumental in getting graduates and underemployed youth for self-entrepreneurship and corporate-level job. Also, doctorate students are given monthly stipend in tune with the UGC scale for JRF/NET Fellowship. Moreover, the students with aspiration for civil service examination are provided with free coaching and accommodation facilities.

Apart from the educational scholarships, funds have been budgeted to provide for financing either for education (all levels), skill development, entrepreneurship, small scale industries, funds for construction of a pucca house and purchase of land etc. In addition, Prime Minister schemes like Pradhan Mantri Jan Dhan Yojana  (PMJDY), Pradhan Mantri Jan Suraksha, Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY), Pradhan Mantri Mudra Yojana and Pradhan Mantri Vaya Vandana Yojana are all cater for social and financial inclusion. So much of a comprehensive package catering to every basic need of below poverty line has been provided by minority and welfare department. For all the schemes to implement and reach it to the ground, local minority offices are established under municipalities across the state, while officers are seen actively promoting and creating awareness through seminars and campaigns. All of these schemes are conceptually and theoretically good but requires effective implementation as to obtain desired results with commitment and conviction from the receiving end parties as well. Despite all these schemes and implementation efforts, they are yet to reach the targeted results in terms of numbers and achieve their objectives. Why?

The dilemma remains: why is there such absolute poverty in a community, where the most downtrodden would rather beg than benefit from such schemes? This has to be addressed at a policy level and administration level.

The problem is the banking interest.

To understand this, let me explain how the Government of India channelizes this process. It engages formal banks for effective regulation and supervision for all their undertaking and schemes implementation. The financing schemes (inclusive of subsidy), are provided in consultation with the nationalized banks for its delivery and recovery. tied with bank interest and insurance, both of which are against the tenets of Islam. Therefore, Muslims tend to avoid avoiding these schemes.

The commercial banks align same interest-based contracts with commercial wisdom and mindsets. Whereas, all the efforts by the government through welfare and minority departments is to alleviate minorities position from absolute poverty to adequate level of livelihood, illiteracy to literacy, penetration in the formal sector from their excessive role in the unorganized sector. The motive behind is cooperation, compassion, welfare and development but the use of interest-based financing contracts makes it deemed not practical in achieving the above-said goals and also anti-faith to the Muslim community.

There are academic and practical case studies to augment the claim that borrower has become true slaves to their loans. The amount being disbursed to achieve development has to achieve those objectives instead of deepening the borrower financial situation. In most of the cases, individuals are left with no option but to restructure the debt with higher interest and fees to pay. There would be scenarios of complete default as well. This is because of interest being charged relative to days of borrowing. Hence, the interest makes all these schemes anti-welfare and instead only strengthens the control of the banks.

But why does the government in consultation with concerned departments frame financial schemes and programs for minorities which is contrary to their faith? In my humble opinion, the government needs to draft the scheme in line with Muslim faith that definitely accommodates all government regulation except the use of interest-based contracts.

The way forward in structuring

Such welfare schemes have to be structured based on the actual cost of borrowing with the relaxation and easement on days of payment in case of default. This has to be done through a separate mechanism that might be within the conventional banks opening up a new state cooperative society exclusively for financing in such a way. Financial inclusion policies and schemes conceptualized through PM’s aspirational Yojana’s and minorities department can be effectively utilised if they are structured without interest and conventional banks routes, rather than being channelized through a specialized institution. This is a fundamental change needed if the government is serious about Muslims actually benefiting from the schemes meant for them.

This is my strong suggestion to all bureaucrats and officers to revisit and re-look the proposition of welfare schemes if they are serious about Muslim development and solving their innate problems.

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Over the last year, I have watched with a mixture of amazement and despair as thousands of Muslims lost their hard-earned money at the hands of fraudulent companies who promised ridiculously high returns in the name of ‘Halal’ investments. I wonder why people would willingly walk into such traps without checking the background of such companies, their ‘Halal’ label, their books and accounts etc. Over time, I found the answer and it was right there all the time. 

Let’s go with an example. A Muslim student is recruited as an employee at a software company. He/she saves Rs 25,000 per month, which means, a year later, he/she would have saved Rs. 3 Lakh per year. At different stages, all his classmates manage to get started with business or secure a decent job and have started investing in some areas through the mainstream banking routes. The Muslim student, on the other hand, remains confused because as a practicing Muslim, he/she does not want to invest in and/or earn interest. When he/she thinks of investment options, depositing with the conventional banks or insurers would not be an option.

Does Shariah Compliant mean Anti profit?

It is also important to point out that over the past few years, the phrase ‘Shariah-Compliant’ has wrongly acquired a negative image due to a misconception that Shariah is anti-profit. This is a myth. A huge number of companies in India are Shariah-compliant and equity is the preferred mode of investment in Shariah. Hence, stocks should have wide acceptance among Muslim investors as long as these stocks follow Shariah rules. In fact, even the National Stock Exchange and the Bombay Stock Exchange have a Shariah index which allows you to keep track of investments and companies that follow Shariah principles. The moot point, however, is this: how do you encourage a population that is economically and socially backward to invest in something as technical as equity investing? Plus, talks of stock investments ring premature when seen in context of the large-scale marginalization of Muslims when it comes to having access to Shariah-compliant banking.

The only option left, then, is to either to start new business with the help of relatives and friends or invest in real estate. And we know that starting a business is neither possible for everyone nor ideal. In the case of real estate, the investment is high and it cannot be liquidated (cannot be converted into cash immediately).

The state of Our community’s savings

Where then, does the money saved by Muslims go? Either it lies unattended in banks (and the banks use it to further interest based loans, an anti Shariah business) or the money lies at home losing value). Who is to be blamed for this? Our savings are not used by our own people and not used for our causes – either business, education, insurance or any needs. And despite several proposals, suggestions and ideas, the Reserve Bank of India and the Government are not in favor to allow full-fledged interest free banks and Takaful (insurance) companies to operate. And when even the ‘pro-Muslim’ Congress/UPA government did not allow it, do we honestly expect this NDA government to do so?

As a result, India finds itself in a rather unenviable position. The world’s third-largest Muslim population has less than 3% representation in financial system. This is even less than their representation in the Indian bureaucracy (4.7%) which itself is hardly a number to feel good about.

No wonder then, that the cases of fraud (which are happening more frequently in Bengaluru and Hyderabad) have become common these days. Companies which claim to do business in terms of Islamic rules of transactions have failed miserably in terms of performance and hence couldn’t sustain over a period of time. They pool investment from small savers, business organization and retired individuals and promise an expected return which they can’t provide for. Some companies are openly indulging in Ponzi schemes, only adding to the image that interest-free financial institutions are not to be trusted. 

Do we have viable options? 

What we need is a an interest free financial model which is legally sound, financially robust, commercially viable, socially inclusive and shariah compliant. Many companies have tried but failed mainly due to mismanagement of funds, excessive exposure to real estate and dubious financing practices are just few of the problem to mention. The massive rise and the subsequent fall of ponzi companies have once again necessitated the task of reformation of real alternative. In this context, companies like Rehbar, Mount Judi, Secura, Cheraman and TASIS (shariah indexes) are some of the ground breaking efforts furthering the alternative option.

On the level of cooperative societies, there are institutions like Janaseva, Sanghamaum, Al khair, Bait un Nas, Sahulat Microfinance and Islamic Welfare Society which have gained trust in the public in terms of their performance and sustainability. On the stock exchange, there are Tata Ethical Fund and Taurus Ethical Fund which will appeal to the faith-based investor. There are no capital market instruments (stock and bonds, debentures, treasury bills, fixed deposits) available so far that claim to be Shariah-compliant.

How to know if a company is Shariah Compliant? 4 points

Any business/finance or investment in accordance with Islamic Principles is called Shariah-compliant. There are research reports, books and many speeches available on the issue, but essentially there are four principal rules/criteria to check the Shariah permissibility:

1. The first and foremost is the business activity screening. Before investing, make sure that the company doesn’t violate any shariah prohibition. Accordingly, any involvement or investment in business of alcohol, pork, gambling, tobacco, and any interest-bearing transaction and all those that are prohibited under Islamic law are to be avoided.
2. Second, all the business undertaking or investment commitment needs to be thoroughly written down between the parties and the witnesses are sought to form a contract. While contracting, all terms and condition should be in clear guideline so that no disputes arise in the future. Any uncertainty as to the subject matter, price, delivery date etc shouldn’t jeopardize the true and actual performance of the contract.
3. Third, any partnership or co-venture between parties must have equal chances of profit or loss. Any investments that claims to make a fixed sum of money as returns are void under Islamic law. As with any investment, there is a chance of making losses the same applies to Shariah-compliant business/ investments as well.  Reporting losses doesn’t mean non compliance with Shariah.
4. Fourth, any investment that doesn’t disclose their business in terms of nature and accordingly their accounting fails the test of compliance. This demands the accounting and auditing of the whole business.

These are the prerequisite notes that can be controlled if external body legitimately have supervision both from commercial and legal (including Shariah) point of view. And this is where the fraudulent companies were able to get away. Insurance companies have the Insurance Regulatory and Development Authority of India (IRDAI); the stock market has the Securities and Exchange Board of India (SEBI); banks have the Reserve Bank of India (RBI) and Halal-compliant companies? There is the Ministry of Corporate Affairs and the Registrar of Companies but that is for all registered companies. However, there is no single body or authority that investors who have lost money in these companies can approach. This was most visible when complaints against Heera Gold surfaced; it was between the Crime Branch, the Economic Offences Wing, the Enforcement Directorate and the Serious Frauds Office of India to decide. No wonder then, that the people who have lost money have little hope of ever getting their money back.

The most fundamental yardsticks to consider is the shariah-compliant actual business performance, growth and development and its impact in the economy and its future course of business. It is becoming increasingly clear that in the absence of a regulatory authority and any offering of an alternative from the government regarding investments and banking, Muslims are caught between the devil and the deep sea. And these fraudulent companies are making millions by acting like saviours.

(The author has vast experience in Islamic finance having worked in Malaysia and Middle East and is currently based out of Bhatkal, Karnataka. He can be reached at abudasif@gmail.com)

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of SahilOnline and SahilOnline does not assume any responsibility or liability for the same.

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