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Friday, 18 July 2014

India: Islamic financial institutes beneficial to infra

AHMEDABAD: Infrastructure is at the top of the newly appointed Prime Minister's priority list, and it can get a facelift from various Islamic financial services due to features likes avoidance of charging interest on principal (Riba), according to a study undertaken at Cept University. 

Yash Majeethia, MTech, infrastructure engineering and management, faculty of technology, Cept University, and Tushar Bose, assistant professor, faculty of technology, Cept, have authored a study, 'Islamic Financial Instruments an Opportunity for Financing Infrastructure in India' that has been published in 'Journal of Business Management and Social Sciences Research' recently. 

According to the study, introduction of Islamic finance can play a crucial role in order to bridge the gap and support India in achieving anticipated growth projections, especially in infrastructure sector; as operations in Islamic financial system are characterized by avoidance of Riba, the money invested cannot be channelized in other areas. 

India has an estimated infrastructure funding deficit of Rs 14,60,784 crore for the twelfth five year plan (2012-2017). "Islamic finance services can be banking or non-banking in nature. It is not limited to any community and can be benefited from irrespective of religion. One can see it as participatory banking," Majeethia said. 

Kerela is the first state that has come up with an Islamic non banking financial services company in the country in 2013. It has already received clearances from the Reserve Bank of India, Security and Exchanges Board of India and the Waqf board. Similar models can be run in other parts of the country too. 

Why Islamic financial institutions? 

Islamic financial institutions rest their objectives and operations on the Shari'a law, Islamic law, based on a verse of the Holy Quran that says "Allah has allowed only legitimate trade and prohibits interest". It is based on the philosophy of risk sharing; both lender and the borrower share the risks as well as the returns that are incurred from a project. This discourages fixed returns in terms of predetermined interest rates known as Riba. 

Secondly, it emphasizes on socially responsible investment, characterized by avoidance of Riba, avoidance of Gharar (involving in activities relating to uncertainty or speculation), avoidance of Zulm (oppression of one party by the other), avoidance of Haram (discouragement of services and goods which contradict the Islamic value), introduction of Zakat (laying a specific predetermined Islamic tax on various activities) and focusing on Halal (activities that are religiously permissible).

(The Times Of India / 17 July 2014)
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1 comment:

  1. This would be a win win situation for both India and Islamic Finance. there would be some reluctance in India to set up Islamic financial institutions. Sukuk would be a good model if the Indian infrastructure companies can use it as a source of development finance. It is also necessary to look at the tax implications for the Sukuk investors, those who are investing from Middle East or other Islamic countries.


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