Micro sector fit for Islamic financing

http://www.dc-epaper.com/DC/DCC/2009/01/16/ArticleHtmls/16_01_2009_013_020.shtml

Micro sector fit for Islamic financing

R. Seetharaman, chief executive officer of Doha Bank, is a strong advocate of Islamic banking. He began his career at the global consultancy firm Price Waterhouse & Associates. A graduate from Raja Serfoji college, Tanjore, he is a chartered accountant and holds certificates in IT Systems and Corporate Management. Recipient of numerous honors and awards, including the Middle East banking industry’s Banker of the Year Award in 2007 and the 2006 Arab Asian Banker Excellence Award, Seetheraman is a renowned speaker and author on cross-border economic issues. This Tanjore Brahmin believes that Islamic banking is ideal for Indian condition and would help eradicate poverty.

Excerpts from an interview with K. S. ANANDAN.
How will a country like India benefit from Islamic banking? Gulf countries possess enormous prosperity from oil and gas. Huge gulf funds can be expected to flow in once India recognises Islamic banking. The micro finance sector is a fit candidate for Islamic financing, which is also a solution for alleviating poverty.

How is Islamic banking different from commercial banking? Islamic banking is consis tent with the principles of Sharia (the Islamic law), namely sharing and caring. Commercial banks charge interest whereas Islamic banks prohibit interest. Sharia prohibits gambling, liquor and any other business that is not conducive for human prosperity. In Islamic banking, we give equity financing, not debt. The system insists on a transparent contract, and there is no hidden agenda in the process.

If you don’t have any commercial interest, how serious will you be in monitoring your partner? We have to create a Special Purpose Vehicle (SPV) for issuing Islamic Sukuk (bonds). Principles of Sharia very categorically state that the responsibility of sharing is applicable for both partners.

How many countries are banking on Islamic financing, with how many banks? What is the asset base under this system? There are 36 countries practicing Islamic banking, including the UK, Japan, Canada and Taiwan with 715 banks across the world. Over $12 trillion assets are under this system.

With globalization, the entire global financial system is interlinked. In such a scenario, how can Islamic banks operate in a standalone fashion without integrating the massive global financial system to function in a safe mode? The global financial crisis is a result of unethical banking practice. They practiced asset-based transactions instead of assetbanked transactions. In Islamic banking, all transactions are done with assets and the products are backed by assets. The system has inbuilt security with its asset base, ensuring its safety.

Why is the Indian regulator reluctant to introduce Islamic financing? We need to create a Sharia board, regulatory system, rating agency and auditors all based on Sharia to introduce Islamic banking in India. Modern Islamic banking is just a 30-year- old industry. Over a period of time, I believe, it will evolve in our country.