Islamic Finance: What India Can Learn From Turkey




[dropcap]T[/dropcap]urkey is one of the largest and most powerful Muslim countries. It also connects Asia with Europe. It is one-and-only in many aspects. Since the dismantling of Khilafah (a global seat for the Islamic empire) in 1924, it had followed the path of secularism that virtually meant a war against Islam. But Turkey, as a nation, once again proved its unique character. Despite being a deeply religious society it never allowed itself to descend into chaos. In the better part of the 20th century, Turks faced these new “secular” challenges with remarkable dignity, patience and prudence. In their infinite wisdom, they never pursued “all-or-nothing” approach.

Justice and Development Party (AKP) played a pivotal role in this change. Others in the civil society also chipped in. They did not “lobby” for changing the constitution or law before bringing change to the society. They took a series of pragmatic steps within the existing limitations to reach a position where they can bring a perceptible change (not just promises) to the society.

Even after coming into power in 2002, they did not try to “impose” their will. With due respect for the constitution and laws of the land, they tried to bring subtle changes. Thisapproach brought them unprecedented election victories, including the one last week. It was both democratic and pragmatic way to add value to the society.

Months before AKP came into power in Turkey,I finished my PhD in 2001 – studying the practices of Venture Capital Financing from an Islamic perspective. As someone who had worked for a Venture Capital (VC) Fund before, my goal was clear: try to setup an Islamic VC or Private Equity Fund as an example of a “differentiated model of financing”.My effort failed for the lack of investors’ appetite back then – I was trying to raise funds right after 9/11.

Despite the failure of my own initiative and without having a clue about how the new Turkish political architecture was being shaped, I was convinced that for Islamic Finance to take credible roots, a practical model was needed that is (a) fundamentally different from the existing methods of financing and (b) at the same time economically sustainable. My thought process was clear: the model should be actionable without Central Banks and Parliaments changing their existing laws and regulations – as both require political will. And under the current scenario that is hard to achieve in the name of Islam, even in some Islamic countries. So no question in non-Muslim countries!

In India, enormous effort is being invested to lobby various government agencies and the Central Bank to change certain financial laws to allow Islamic banking. For a country that has the third largest Muslim population in the world, this is a fair expectation even if we falsely assume that Muslims will be the sole beneficiaries of Islamic banking. However, for more than a decade I have been advocating a strategy, (which later turned out to be a successful “Turkish model”). In that, our efforts should be focused on a selective few areas to demonstrate tangible benefits of “our financial system” to the society.

I have been in favor of drawing up an exclusive plan for rural sector (through interest-free micro credit programs) and for corporate sector (through Islamic Venture Capital or Private Equity initiatives). Both these initiatives can be launched within the existing legal/regulatory framework.

Both projects require highly qualified and experienced human resources (not merely committed cadres of social/religious organisations) followed by reasonable amount of financial resources. No time, effort or energy should be spent for launching full-fledged Islamic banks or even “Islamic windows” within the existing conventional banks. Under the present economic architecture, both will be detrimental to the ultimate goal of Islamic Finance i.e. establishing socio-economic justice in the society.

Instead, focus should remain on developing top-tier human capital in the areas of economics, banking, finance, accounting and business studies with sound knowledge of Islamic economic laws. They may then be trained in some of the top Islamic financial institutions, preferably in the Far East. ICIF’s effort for integrating Islamic banking courses in madrassa (religious school) curriculum is, in my view, setting the clock back by many decades!

I have been closely following a wide array of activities of the Indian Center for Islamic Finance (ICIF), New Delhi. Their vision is noble and their efforts are commendable. But having gone through their 2013 Report (available on,it re-confirmed my view that ICIF lacks focus. They seem to be doing everything under the sun that they believe will help achieve their vision of bringing Islamic Finance to India.

This, despite ICIF being perilously short of human and financial resources.It is primarily supported by volunteers, some of them retirees. Such paucity of resources makes it even a more compelling case for them to focus on a couple of practical initiatives rather than spending never-ending efforts in lobbying the government to change laws or rules for setting up full-fledged Islamic banks.

As I have argued elsewhere, Islamic socio-economic goals can be largely met even in the complete absence of financial institutions that we know as “banks”.  But for that to understand (and make it happen), we must step out of emotional territories, and step into pragmatic territories. Human species has always been impatient. But in the 21st century, we are getting more restless for experiencing real change, not just promises to change.

On many occasions in the past, I tried to convince senior functionaries of ICIF to change their track so that some “quick wins” can be achieved and then shared with not just those Muslims who are presently sitting on the fence but also with our non-Muslim compatriots. That would have helped convince Muslims and non-Muslims that like Islam, Islamic finance also offers tangible socio-economic benefits to all humans and not just Muslims alone. This public piece might help ICIF reinvent their strategy. Hopefully!

All opinions and views expressed in columns and blogs are those of individual writers and do not necessarily reflect the editorial policy of Caravan

Clarion India - News, Views and Insights about Indian Muslims, Dalits, Minorities, Women and Other Marginalised and Dispossessed Communities.

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