A meeting under the banner Forum for Group Discussion on Economic Issues (FGDEI) commenced on 26th May 2013 in Dawat Nagar, Okhla, New Delhi. This forum has been formed by Sahulat Microfinance Society in association with Radiance Viewsweekly in order to deliberate upon issues relating to Islamic economics, finance and banking. The meeting started on a welcome note delivered by Mr. Arshad Ajmal, Vice President, Sahulat Microfinance Society. Mr. Arshad Ajmal delivered a presentation on the topic of "Experience of International Workshop on Zakat, Waqf and Islamic Microfinance organized jointly by the Bogor Agricultural University (IPB), Indonesia and Islamic Research and Training Institute (IRTI), Islamic Development Bank on 29-30 April 2013 in Bogor, Indonesia".


He shared his experiences gathered by attending the workshop, where he was invited as a resource person on islamic microfinance. The points he mentioned in the presentation, were as follows:

  1. The areas of ice-breaking on Islamic Microfinance can be divided into Conceptual Development of Fiqh and conceptual development of Economics & Finance Regulatory Framework, Supervision, Risk Management and Governance.
  2. A deliberation on the question is to done as to whether Islamic Microfinance institution should be treated as a banking institution only since the functions it performs are varied e.g. poverty alleviation, financial inclusion etc..
  3. Banking has always been value neutral and it has not focused on socio-economic role which is inherent in the banking system and not by design but microfinance has emerged due to the fact that banks have failed in financial inclusion.
  4. Baitul Maal wat Tamweel (BMT) is the Indonesian tradition and a question emerged as to whether BMT and other financial cooperatives be grouped with for-profit Microfinance Institutions (MFIs) and be subjected to a unified regulatory framework? In India we have our for-profit MFIs (mostly Non-Banking Financial Companies) and don't have a very bright history as they have been mired in a lot of murky practices and controversies. So, the clear route would be to have separate regulations for for-profit and not for-profit MFIs.
  5. All Islamic financial instruments are virtually profit sharing mode and as empirical studies go on to prove, Islamic finance have not quite addressed poverty. Another serious criticism of Islamic finance is that it has faced the issue of sustainability and thereby failed in fulfilling its social mandate. Moreover Islamic finance places itself heavily on debt instruments and less on equity instruments.
  6. The major problem with the institutional or legal framework of microfinance is that of raising deposits. NBFCs or other forms of MFIs are normally not allowed to raise deposits since safety of deposits remains a major issue. So far the MFIs have been financed by Banks or other financial institutions. This dependency factor affects the self-sustainability of MFIs.
  7. However Cooperatives have addressed the issue of deposit raising to a great extent as it allows to raise deposits upto 10 times of paid up share capital and the Capital Adequacy Ratio (CAR) is inherently adjusted. Cooperatives are also unique as these raise deposits only from its members.
  8. As for the raising the actual cost of operations reasonable is what various Islamic scholars prefer for Islamic finance. But as for cooperatives it works on a different premise since the owners are the members of the cooperative itself so the cost of operations can be on real time and actual basis and it is not profit motive which inspires it rather its sustainability.
  9. In Islamic countries e.g. Indonesia, Malaysia and Brunei etc. the charity is also administered and handled by government agencies through their tax structure. In India however this mechanism is not preferable and philanthropy should be different from for-profit. The entities should be separate.
  10. The one member one vote in cooperatives is a democratic process and it ensures actual participation. This should be governing process for BMT as well.
  11. Philanthropy is not peculiar to Muslims but the current governance practices etc. has a lot to offer as lessons in handling finance by institutions practicing Islamic finance.

A live and healthy discussion followed the presentation where Dr Waquar Anwar, Dr Ausaf Ahmad had participated along with other participants. While Dr Anwar reiterated that service charges should be revisited often and cannot be fixed as far as Islamic microfinance is concerned Dr Ahmad expressed the doubts about using Baitul Maal and Tamweel in the same space as these are different expressions as far as their connotation and history is concerned.

The meeting ended with a note that certain points would be deliberated upon further and thanking of all the participants for their valuable inputs and presence. Mr Sadre Alam CA, Dr Raziul Islam Nadvi, Secretary Tasnifi Academy JIH, Mr Abu Faizan Research Scholar JMI, Mr Abu Osama, NRLM, Mr. Shahid Jamal Ahmad Co. Secy, Mr. Sikandar Azam, Mr. Mohd naushad Khan of Radiance, Mr. Azim Hussain, Ms. Tahmina Laskar of Sahulat Microfinance Society and Mr. Abdullah M. Farooqi were present during the discussion.