Islamic finance: Idea whose time has come

Source: Deccan Herald

Even as the Reserve Bank of India (RBI) is driving financial inclusion through a combination of conventional and non-conventional approaches, it’s time to take a fresh look at Islamic finance to expedite finance inclusion, especially within the 170 million Indian Muslim community.  

A banking professional with a three-year stint at global banks initially in the US and then at Islamic banks in Kuwait for about five years, Saif Ahmed, who is currently Managing Partner at Infinity Consultants, Bangalore, told Deccan Herald that though Islamic banking in India was ruled out by the RBI Governor D Subbarao last month, there is scope for Islamic finance in many other ways.

“Many people don’t know that Islamic finance has a lot to offer than just interest-free loan, or karz-e-hasan. It has many financial products to offer, ranging from leasing, to equity, venture capitalism and so on. These are doing well in both Islamic and non-Islamic countries and deserve attention.”

According to him, some of the products can be introduced with appropriate tweaking, to make them compliant with the existing laws of India.

Islamic finance is broadly classified in two models, asset-based and equity-based. In asset-based finance, there are two products, murabaha and ijarah. The latter is a form of lease financing and similar to conventional lease finance, but comes with the basic ride that the purpose of the lease should be halal, or Sharia compliant. In case of murabaha, the lender buys an asset on behalf of the borrower and then sells it to be borrower for a profit, the full amount payable in installments.  Read more

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