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It is a finance system based on the principle of not charging interest, prohibited under Islam. Now, it goes by a more formal moniker – participatory banking.
Instead of charging interest, the lender shares a part of the profit – or loss – with the borrower
It is open to non-Muslims as well
By 2020, the global Islamic banking industry profit pool is expected to reach $30.3 billion.
Islamic banking to make India debut in PM Modi’s home state Gujarat
- Zia Haq, New Delhi |
- Updated: Jun 01, 2016 07:43 IST
Islamic banking is a finance system based on the principle of not charging interest, prohibited under Islam. Instead of charging interest, the lender shares a part of the profit – or loss – with the borrower. (Representative image)
The Jeddah-based Islamic Development Bank (IDB) is in the final stages of setting up shop in Prime Minister Narendra Modi’s home state, a move that will usher Islamic finance for homegrown startups and fund Indian exports to many African and central Asian Muslim nations.
The developments follow an agreement between India’s state-owned Exim Bank and the Islamic Corporation for the Development of the Private Sector (ICD), a private-sector arm of the IDB group, as part of deals signed during Modi’s trip to Saudi Arabia in April.
The IDB, a multilateral lender with an authorised capital of $100 billion, counts 56 Muslim nations as its members. Most of these countries belong to the Organisation of Islamic Cooperation.
WHAT IS ISLAMIC BANKING
Its India operations will be led by Zafar Sareshwala, a prominent Muslim businessman from Gujarat whom the Modi government appointed chancellor of the Maulana Azad National Urdu University soon after assuming office.
Asked if the launch had Modi’s blessings, given the opposition from a section of the ruling BJP, Sareshwala told HT: “Modi is a very pragmatic man. He is keen on investment, infrastructure, trade and economic growth.”
The agreement in Jeddah was signed by Exim Bank regional head Tarun Sharma and ICD CEO Khaled Al Aboodi in the presence of Ahmad Javed, India’s ambassador to Saudi Arabia.
To be based in Ahmedabad, the bank will offer interest-free capital to business startups, including small and medium enterprises within India, marking the entry of the so-called Islamic banking – also known as participatory banking – into the country.
According to an Exim Bank statement, the IDB’s bigger role will be in the $100 million (about Rs 670 crore) credit line it has pledged “with the aim of facilitating the export of goods and services from India to ICD’s member countries”.
“The ICD will be open for business to all Indians, regardless of religious background. In Malaysia, the KFC chain runs on ICD finance although it is owned by a Chinese firm. Some people have this unnecessary issue with Islamic banking, which is actually known as participatory banking across the globe now,” said Sareshwala, who has been named as a director for the bank’s India operations.
The IDB has also promised $55m (about Rs 380 crore) for a state-of-the-art rural mobile medical network – the first leg of which will be launched in Gujarat.
The IDB, which complies with global Islamic finance norms, does not charge interest on loans because the religion prohibits it. Instead, it charges a part of the profit and also shares any losses with the borrower.
According to the EY’s World Islamic Banking Competitiveness Report 2016, Global Islamic banking assets would have reached US$1 trillion by 2015-end.
