Need for Interest Free NBFCs in J&K

The election fever is on rise in Jammu & Kashmir. Polling for the first phase has just concluded on September 18^th. Second phase of elections would be held from September 25^th onwards. Neither in the election manifesto nor in the election campaigns we have seen political parties raising the issue of interest free banking in J&K. Not even do they speak about Interest Free Non Banking Finance Companies -NBFCs for which no RBI permission is required. Through this article I am trying to reach out to our political parties and policy makers to think seriously on this issue as interest free NBFC’s can play a great role in shaping our economy. We must know that after China and the US , India is considered to be the third-largest country in the world where start-ups have been prospering. Just before the outbreak of COVID 19 pandemic, the US-India Strategic and Partnership Forum (USISPF) was hopeful of attracting an investment of over 21 billion US dollars that could create around 6 lakh jobs directly and 14 lakh indirect jobs. All this was shattered due to the outbreak of COVID 19, but the work was again taken up and a good number of investments are being made in India through this forum. Infact this year in April the US-India Strategic and Partnership Forum (USISPF) appointed former Revenue Secretary and ex-Secretary of Economic Affairs Tarun Bajaj as the head of the US-India Tax Forum. Bajaj joined the USISPF as an advisor to the Board of Directors in January and will now spearhead the US-India Tax Forum. In Jammu & Kashmir several startup’s especially in hospitality , tourism , handicrafts , horticulture had already suffered major setbacks in 2019 lockdown and then due to outbreak of COVID 19 . Many of them had to wind up their operations post abrogation of article 370 last year. But after 2021 the things started to come again on the track but these startup’s need monetary support which get delayed through banks. This issue can be addressed through interest free Non Banking Finance Companies -NBFC’s

Sahulat Microfinance

Some years back I got a chance to visit Sahulat Microfinance Society in Hyderabad. The visit was facilitated by Shri Vijay Mahajan (V M) one of the pioneers of the Microfinance Movement in India and a gold medalist from IIM Ahmedabad. V M is a great supporter of Interest Free Banking (Islamic Banking) in particular Interest Free Micro Financing and has done great work in this direction. Sahulat was awarded the best Islamic Microfinance Entity of the year in 2018 at an event organized by Islamic Finance Forum for South Asia at Colombo. Sahulat Microfinance Society was established in 2010 as a voluntary, non-political, non-profit making social service organization. The company is providing interest free micro finance options for reducing socio-economic disparities and to achieve justice and equity for educationally and financially backward sections of the public at large. Sahulat also facilitates, organizes and develops institutions, more particularly in the co-operative sector. Mohammad Zakuudin Executive Director Sahulat Hyderabad informed me during my visit that the company aims at facilitating, promoting and developing interest-free micro-finance institutions (IFMIF). He also said that Sahulat undertakes and promotes need based research and developing different products and financial instruments for IFMFI.

Interest Free NBFCs in India

Traditional Microfinance companies across India charge high interest which is as high as 20 to 22 %. In India Interest-free microfinance institutions can be run as legal entities under various cooperative legislations or multi-state acts. The members of the cooperative can be in hundreds and they are partners in both gain and loss. There are around 30 such legal entities working as Interest Free Microfinance Institutions (IFMIF) with 63 branches in 12 different states of India. In Jammu & Kashmir I haven’t heard of any such institution in spite of the fact that such NBFC could be of great help to small entrepreneurs. I was expecting to see these things included in election manifestos of National Conference , PDP , Congress or AIP and other parties but all of them have missed it. Had they made their draft election manifestos public , these things would have been incorporated in the final draft. But as I said in my previous articles , it is never too late and the party or parties that will come to power & form Government must set up a regime of Interest Free NBFCs across nook and corner of Jammu & Kashmir. The IFMFI is owned by the members which can be hundreds in number. Company is democratically controlled by the members which facilitates credit needs at competitive rates for the members. IFMFI also provides other financial services to its members .

UNDP on Islamic Finance

In September 2017 public and private stakeholders, including investors gathered in New York for a high level event titled-‘Realizing Agenda 2030: How Islamic Finance through Impact Investing can help achieve the Sustainable Development Goals (SDGs). During the event it was thoroughly discussed how Islamic finance can be tapped for global development especially to end poverty and above all to achieve the target goals by 2030. The event was co-organized by the Islamic Development Bank (IDB) and United Nations Development Programme (UNDP) with the support of the Organization of Islamic Cooperation (OIC) New York office. The event coincided with the 72 nd session of the UN General Assembly. While deliberating on Islamic Finance and its role in global development, Magdy Martínez-Solimán, UN Assistant Secretary General and Director of UNDP’s Bureau for Policy and Programme Support said :
“Islamic Finance is one of the fastest growing sources of finance in the global financial industry. Global assets in Islamic finance are expected to reach US$3.5 trillion by 2021. Considering the scale, I would like to underline that Islamic finance could offer a strong, non-traditional source of financing to advance SDG implementation “

Partnership between UNDP & IDB

Islamic Development Bank (IDB) and United Nations Development Programme (UNDP) in 2016 signed a Memorandum of Understanding (MoU) to strengthen the collaboration between the two leading development institutions, to support the effective implementation and achievement of the SDGs. IDB & UNDP are collaborating on priority areas such as crisis response and recovery, peace building, poverty eradication, youth employment, skills , innovation, disaster reduction, climate change, sustainable energy etc. In addition to it the partnership is to focus on scaling-up ongoing initiatives, and exploring new opportunities to collaborate for the effective realization of the Sustainable Development Goals (SDGs). The partnership will also work to promote inclusive markets, business models for inclusive development and increased entrepreneurship including advancing the Global Islamic Impact Investing Platform for blending Islamic financing and private sector resources in achieving the SDGs.

Conclusion

At a time when traditional banking institutions are charging huge interest from the customers, I believe ” Shariah Compliant” (Interest Free) Non Banking Finance Companies (NBFCs) or Interest Free Microfinance Institutions (IFMIF) could play a major role to support our Micro, Small and Medium-sized Enterprises (MSMEs) in J&K. Our apple growers , cherry growers , vegetable farmers & other small entrepreneurs can get benefitted. The idea of writing this piece during election time is to give a wake up call to our political leaders. This is a call for those youth who want to pursue ethical business. Such people need to come forward , study Interest Free Microfinance Models and take up this to start their business. At the Government level these things can be institutionalized by enacting a law in the state assembly. Pertinently RBI’s license is needed for setting up banks, but it is not required to set up NBFCs. Once a new Govt is formed in J & K by mid October , I am hopeful that Interest Free Non Banking Financial Institutions would be set up in every district of J&K that would be beneficial for the entire population whether Muslims , Hindus , Sikhs , Christians or those who don’t follow any religion.

Views expressed in the article are the author’s own and do not necessarily represent the editorial stance of Kashmir Observer

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