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Janseva co-operative credit society: a step in Islamic finance and banking in India

The main objective of the Islamic Finance is to create a society of investors, unlike the conventional banking system, which has made and created the society of borrowers and lenders from the past 800 years.

By Tameemuddin Humble,

Islamic finance activism in India should not be limited to the conferences and meetings, asking government to allow and operate interest-free banking for those whose faith prohibits interest-based transactions; it should also be to challenge the stereotype that the Shariah investment can’t yield the profit, even if professionally managed. We can’t sail the boat of Islamic Finance with the people having such perceptions. We can’t reach to its logical end without building an environment of Sharia compliant investment in the country, availing the limited opportunities in the given regulations.


Janseva co-operative credit society: a step in the Islamic finance and banking in India

The high-level committee on financial sector reforms under Dr Raghuram Rajan, appointed by the Planning Commission in 2008, had stated that there should be appropriate amendments in Banking Regulation Act, 1949 and a Separate Rules and Regulation would have to be formed to permit the business of Interest-free banking in India. Prior to this, the Reserve Bank of India had constituted a working group in 2006 to examine the instruments used in Islamic banking. The then Prime Minister Manmohan Singh had also asked the RBI to look into the Malaysian model of Islamic banking while referring to the demands for experimenting with interest-free banking. All these generated the discourse among the Islamic Finance activists until the formation of this new government last year.

Since, it is not binding on the new government to support the policies of the previous government; the activism in this regard should be shifted now from top-down to bottom-up approach and from demand-driven to the self-motivating. That also to prove its own capability of the Islamic Finance in becoming the alternative having the humane face, if allowed to be practiced in India, with some degree of trust.

However, the interest free finance and banking has been tested as a viable alternative world over after the financial meltdown of the West in which many multinational banks went bankrupt at the end of the last decade. Today, this concept is being implemented in over 75 countries across the world and growing at a rate more than 15 per cent.

Not only Muslim or developing countries but the developed countries such as UK, France, Japan, Singapore and Hong Kong also have become hub of interest-free finance and banking. Many multinational banks such as HSBC, Citibank, Standard Chartered, RBS, etc have started Islamic banking windows. The JP Morgan Chases, Dow Joneses and Morgan Stanleys are also out there to make money, not because of the religious requirement of a section of the society. They are in it for the profit. Even the World Bank is considering it as a priority area.


Janseva co-operative credit society: a step in the Islamic finance and banking in India

If the government doesn’t allow full fledge interest free banking, even then it could be practiced in India in a limited way under the given regulations. If there is a will, there is a way. Interest-free financial products can be designed and practiced under Co-operative Credit Societies which are formed by the members, for the members and of the members. These societies are regulated with the RBI and governed by the Central Registrar of Co-operative Societies (in case of Multi-state). Credit Co-operative Societies are developed to serve the individual or a group of peoples who are in low or medium income slab and for those who are not able to get loans from banks as banks see much into to the risk factors and creditworthiness of the applicant.

Co-operative Society is defined as “a union of persons established according to the principles of equality, the purpose is to improve the financial position of its members by joint performance, provided that all profits made, aims to distribute among the members.” There are many Credit Co-operative Societies in India dealing with the interest-free financial products registered under “Multi-State Cooperative Societies Act, 2002”. Case in point are: Patna-based Al-Khair Cooperative Credit Society Ltd operating in four states and Mumbai-based Janseva Co-operative Credit Society Ltd working in 12 states across India.

The ‘Janseva Co-operative Credit Society Limited’ operates with its 23 Branches in India, having membership of around 16,000 with the paid up share capital of about Rs four crores since March 15, 2010 completing five years of its glorious existence.

Janseva offers dozens of Shariah compliant products to its members for investment and deposits, ranging from savings account, loans and recurring deposits to the trade and investment plans. The society also provides the services through its products such as Hajj Fund Deposit, Children’s Education Fund, Self Help Group Fund, Mutual Help Loan Group Fund, etc.

Janseva is developing the habit of saving among its members through the products such as Amanah Saving Fund (ASF), Amanah Daily Fund Deposit (ADF) and the Amanah Compensatory Loan Fund (ACLF). The collection and holding of “compulsory savings” by Janseva helps its members in availing the loan products. It has many innovative products of investment and trading loans.


Janseva co-operative credit society: a step in the Islamic finance and banking in India

But the Islamic Finance needs now an environment to grow and that could only be provided by the community’s self-initiative to own it and give a chance to prove, certainly not rhetorically. Community awareness about the investment in the Sharia-compliant products should be developed and motivated to invest, seeing the least, that is the investment be complied with the inflation and security, not being much greedy.

The main objective of the Islamic Finance is to create a society of investors, unlike the conventional banking system, which has made and created the society of borrowers and lenders from the past 800 years. Based on the risk-sharing in trading, it does not create a debt-ridden society. Money must be made from genuine trade or economic activities. Money cannot be made from money. Money earned without undertaking any trade or risk taking is prohibited in Islam.

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(Tameemuddin Humble is the Secretary of Movement for Economic Society, Gaya, Bihar, and can be contacted at [email protected])​