Scope and Feasibility of Islamic Banking and Finance Model Kazakhstan & Indian Perspective

By Malik, Bilal A.; Khaki, G. N. | The Journal of Central Asian Studies, January 1, 2015 | Go to article overview

Scope and Feasibility of Islamic Banking and Finance Model Kazakhstan & Indian Perspective


Malik, Bilal A., Khaki, G. N., The Journal of Central Asian Studies


Introduction

Asia is home to 62% Muslims of the world, and therefore, the demand for shari'ah compliant financial products has always been felt across the region with a greater supportive strength.1 Kazakhstan and India, being part of that Continent, lag behind as compared to other neighbouring economies like Pakistan, Malaysia, Indonesia, Bangladesh and Iran. The development of Islamic finance industry is negligible in case of India and relatively weak in case of Kazakhstan. The main reason behind this stalled growth in these countries is generally ascribed to the secular structure of the constitution. Being secular in socio-political disposition and much reluctant to religious developments, they have no state religion except that Muslims in India have 'Muslim Personal Law' to govern (certain) family matters, while Kazakhstan has a state sponsored apolitical religious board called the 'Muftiate' for the said purpose.2 The inclusion of fundamentals of any religion in state formation is contextualized as a potential threat to the prevailing secular democracy and nation building. As for the Islamic financial institutions, the shari'ah compliance is a primary requirement which in turn persistently demands the incorporation of Islamic standards of doing business. Since most of the shari'ah based financial operations like musharakah, mudarabah, murabaha, istisna, salam, ijarah and wadiyah, objectively different from the conventional structures, don't fall under prevailing banking and finance regulations in Kazakhstan and India. Therefore, there are some general and, certainly, some regional challenges for the industry to operate and expand its services. Despite being a secular state, Kazakhstan, so far, has introduced gradual amendments in its constitution (2009, 2011, and 2015) to facilitate Islamic financial services in order to attract both local customers as well as capital rich foreign Muslim investors in the country.3 However, India, with a large Muslim population, has not introduced any such constitutional change except allowing Al-Barakah Financial Services Ltd., a non-banking finance company (NBFC), to operate in Kerala in August 2013.4

Foundations of Islamic Banking and Finance

Needless to say that Islam has a set of goals and values encompassing all aspects of human life including social, political and economic. Since all the aspects of life are interdependent and Islamic way of life being a consistent whole, its goals and values in one field determine the goals and values in the other fields as well. Consequently, the said interdependency is to be put into consideration when it comes to economic participation and financial engagements.5Therefore, responding to the need, scholars of shari'ah developed an alternate system of banking and finance under the guiding principles offiqh al-ma'amalat (Commercial Jurisprudence) which, considerably, differs from the Western or conventional system. The former is strictly engrossed in the shari'ah and latter is purely a human workout.6 As such, Muslims are expected to engage with banks and financial institutions that offer products which are in line with Islamic principles. The Islamic finance industry is based on four major principles, explicitly referred to in the Qur'an, hadith and fiqh (jurisprudence).These principles are: La-Riba (no-interest), La-Gharar (no-uncertainty), La-Maisir (no-speculation), and La-Haram (no-unlawful).7

It would not be out of place to mention that in the economic philosophy of Islam money (paper currency) in actuality has no value and it becomes 'actual capital' only when it is invested in a productive activity. Thus, in contrast to conventional theory of money, selling of money for money, for example, US$100 for US$110 is not same as selling a bag of rice (commodity) costing US$100 for US$110.Islam adopts characteristic differences between money and commodity and considers money as 'potential capital'.8 It must be noted that increment in the price of a commodity in any sale contract to be paid at a future date is not prohibited in shari'ah. …

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