IOS on-line lecture on “Musharakah financing (joint partnership) and its Relevance in India”

New Delhi: An on-line lecture on Musharakah financings (joint partnership) and its relevance in India” was organised by the Institute of Objective Studies on February 20, 2021. The lecture was delivered by the professor at the Centre for West Asian Studies, Jamia Millia Islamia, Prof. Javed Ahmad Khan. Introducing the topic, Shaikh Nizamuddin, a member of the general assembly of the IOS, said that capitalism had now become federalism, and in response to the prevailing dominance of the capitalist and the socialist economic systems in the Muslim world since the early 19th century, the pioneers of Islamic economics were engaged in reframing the Shariah-based modes of fiancé as an alternative to capitalism and socialism. In contemporary times, musharakah was considered as an ideal model of the long-term financing needs. He observed that musharakah was a standard partnership contract from the early Islamic trade and investment activities.

Delivering the lecture, Prof. Javed Ahmad Khan, said that he had been asked by the IOS chairman, Dr. M. Manzoor Alam to make a presentation on how musharakah financing could be developed in India. Islamic financing had several aspects which needed to be descriptive in today’s context. Explaining the historical and political aspects of Islamic financing, he said that the musharakah had attracted the global attention of late. That was the reason why more and more discussions on the subject were being held among developed nations. There were certain issues, like the transfer of surplus to deficit units and equity that needed to be discussed. He observed that the ulema too were examining the concept of Islamic financing in the light of Shariah. It was also being examined if Islamic mode of financing was relevant and working. Then there was also a question why the issue of Islamic financing did not occur to the minds of the ulema and the scholars throughout the Islamic history. The musharakah became relevant in 21st century and the needful was being done in a critical manner and in the Shariah framework, he said.

Prof. Javed Ahmad Khan pointed out that today the Islamic mode of financing was receiving more attention in the west than in Muslim countries. Holding that there was rationality behind putting to question the modern banking system, he said that no financial system could survive on credit-based financing. He noted that a very disturbing trend was taking place in several Muslim countries, except a few of them, like Turkey, Malaysia and Bangladesh, because they were not progressing despite being very rich. This had caught the attention of scholars. In 1973, about 400 scholars, finance ministers and economists assembled in Mecca to deliberate on the issue. 

He said that musharakah and musharba were the back-bone of Islamic financing. This was in practice when Arab traders came to India and China. In 1975, Islamic Development Bank and other Islamic banking institutions came out with economic and financial development based on Shariah. It was significant to note that Islamic banking had not been criticised like Islamic fundamentalism. Its acceptability can be determined by the fact that Russia and the UK had adopted the Islamic banking system. There were two routes of Islamic financing, viz., musharakah and musharba, he said.

Prof. Khan explained that under the Islamic financing, risk was shared by the partners as it was based on a rationalistic approach. On account of being rationalistic, it was getting attention world-wide and becoming popular among non-believers as well. Risk sharing mechanism included capital financing and equity financing. Then there was crowded equity financing which was not permitted in India. There were the new sharing instruments under the musharakah which could be utilised in India. He said that India looked favourably to the risk sharing capital. Referring to venture capital fund, he said that the international community was looking to equity financing in IT and service sectors. India was also looking to international capital investors for investment in these sectors.

According to the study conducted by the London School of Economics in Malabar, Muslim traders who came to India, applied musharakah and musharba instruments, he said. 

Prof. Khan remarked that a new trend had emerged under which Arab leaders wanted high return on their trade. India too wanted gulf investment in the country. She was very interested in capital stock, share market and sukuk capital financing. He said that sharing capital finance was the modern trend and the global sukuk insurances were growing. Though musharakah financing held a high promise in India, it was a big challenge too, he concluded. 

In his presidential remarks, Dr Kaleem Alam, faculty, Islamic Economics Institute (IEI) King Abdul Aziz University, Jeddah (KSA), emphasised that India must become a member of Islamic Development Bank (IDB). Giving the illustration of Nigeria, he noted that it was growing fast on Islamic financing. Algeria had enacted a law for Islamic financing. In Spain, a debate on introducing Islamic system of banking was going on. Saudi Arabia had unveiled vision-2030 for the purpose. But in India, it was still a challenge as it was not an easy task to perform. He opined that parts of musharakah could, however, be implemented. Commenting on housing finance, he said that it had some constraints, but could be implemented. This was not something that could not be practiced. It was trust deficit that lacked everywhere. He pointed out that Prof. Javed went soft on the political aspect of the issue. 

The chairman, IOS, Dr. M. Manzoor Alam held that he participated in several meetings held by IDB. The then President of India, Fakhruddin Ali Ahmad also participated at Rabat. He said that some differences among the members surfaced during the meeting of the OIC (Organization of Islamic Countries). They wanted India to first apply for its membership. But he was categorical in his observation they did not want India to become a member of the organisation. He doubted if India would take an initiative in this regard.

At the end, Shaikh Nizamuddin proposed a vote of thanks to the on-line attendees.