Wednesday, February 06, 2013

Building new ties with sukuks

The Indian economy needs to understand its hidden potential and use it for getting Islamic Funds says Vikas Kumar

Take a situation where a person, who wants to start a small business, has to take a loan from bank. He agreed to pay an interest of 10%. After a year, he earns a profit of Rs.70,000, which alone is not enough to pay back his loan. The person now has two options in front of him, either to close down his shop or get caught in a vicious circle of interest payment. While the first case would put him into a situation where he has to throw out his people, in the second he would never be able to get rid of his debts.

But, had the person gone for Islamic Banks, he would neither have to close down nor would he ever need to take loans in order to be able to pay back his interest. While the former case is the conventional form of banking, the later is the latest trend in the banking arena called Islamic Finance. The conventional banking adds to the economy by giving loans, earning profits through interest and then infusing the same money back into the economy. In the Islamic Banking System, a person is given loan based on his capability and is not charged with any kind of interest. For a country like India such a form can prove to be a blessing. Because of the current recessionary phase and as the effect of it, the rich Arabs are failing to invest in high paying options across other nations. And now, since the US and the European markets are failing to revive themselves as soon as expected, the Indian markets are proving out to be a better option for them.

Says Assocham President, Swati Piramal, “The government is planning to spend more than $345 billion in the coming years, to build a new and fundamental structure. But it does not have that kind of money with it. So, it is trying to fill the gap with PPP model. In this case, Islamic Funds can change the whole scenario by investing in ports, roads and airports.”

In line with her thoughts and describing the nature of Islamic Financing are the views of Qatar-based Islamic Finance consultant, Monzer Kahf. He says “Islamic Finance is just like any other business. It does not discriminate on the basis of cast, creed or colour. It is not only for the Muslims but is for all.”

Source : IIPM Editorial, 2012.
An Initiative of IIPMMalay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.