Wednesday, February 6, 2013

Needs to understand its hidden potential and use it

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

Venture Capitalist and IT and Education adviser to the UN, Samir Q Fakhrao said to B&E, on the sidelines of the Indo-Arab Economic Cooperation Forum, “Islamic Finance tries to set up a new ethical benchmark.”

What then is the basis of this kind ogf financing? No two experts share the same views. But the basic requirements are that the loans should not be given to businesses which deal with tobacco, alcohol, pigs or related items, vulgar content and artillery. Besides, charging interest rate is strictly prohibited. The funds are not allowed to invest in firms where the promoters are looking for profit as the ultimate objective.

As of now it doesn’t seem that the Indian government is every enthusiastic about bring home investments from such funds. One of the reasons is that the current systems in India does not fully support Islamic Banking, which are a major part of Islamic Fundings. Take for example the fact that Indian banks are not allowed to invest in real estate. But the Islamic Banks have to invest in properties so that they don’t have to charge interest from the debtors.

Besides to attract Islamic Funds, India needs to substantially change its tax structure in order to be able to benefit from the funds. Then there are the religious issues as well, which can turn out to be a major roadblock. Since these funds are branded as Islamic Funds, people related to other religions may not like to use such loans from Islamic Banks.

However, experts believe that since these banks are interest-free, they can attract a bigger mass. And if done in a proper manner, insurance sector can be a major beneficiary since the majority of Muslim population is outside the gambit of insurance coverage.

Also there are many mutual funds like the agri-funds and power sector-based funds, which follow Sharia laws, can get a net inflow of funding. But in reality, the asset management companies (AMC) have not been able to tap this potential. 


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

For More IIPM Info, Visit below mentioned IIPM articles.

 
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