Volume 15-07 No:175
The quest for sustenance is regarded as “seeking the bounty of Allah”, and is thus hued with a profoundly religious character. The Prophet (Pbuh) has said: “The quest for halal earning is a duty after a duty” which implies that seeking halal sustenance is a religious obligation second in importance to religious observance like prayer, fasting etc. Economic activity in the life of a Muslim is therefore regulated by divine principles, principles that are premised on commercial morality. Commercial morality is intrinsically bound to religion and is as important to faith, as wudhu is to salat. The Qur’an describes upright merchants in the following words: “Men whom neither business nor sale can divert from the remembrance of Allah, nor from regularity in salat or from giving zakat”. True believers are not recluses or mystics, they are men of action distinguished by their moral fibre. They steer clear from unbecoming business ethics or ill-gotten gain.
Commercial morality comprises of four fundamental ethics:
* Legal Activity
* Fear of Allah
Trade by definition entails dealing with people; it forges a mutual association between buyer and seller. This association must be sustained by:
* Mutual Consent: The Noble Qur’an states: “O! You who believe, do not eat up each other’s property by wrong means except by way of trade based on mutual consent”.
* Unimposing Salesmanship: The Prophet (Pbuh) has said: “ Beware of excessive oaths in trade, (it may help) to secure a deal but will subsequently wipe out blessings”.
* Compassion: The Prophet (Pbuh) has said: “May Allah show compassion to a man who is lenient when he sells, buys or demands payment”. (Bukhari)
* Legal Commodity: A Muslim may only sell items that he himself is allowed to use or consume. Umar (y) was once informed that a certain person was selling alcohol. Umar (R.A.) said: May Allah curse him!”
* The proportion of sustenance is determined by Allah.
* It is an act of worship to trade in order to avoid depending on others.
* Greed leads to perpetual poverty.
* Lawful earnings draw the blessings of Allah, even though it may seem meagre.
* Kindness is more virtuous than obsession with wealth.
* Commit yourself to equity, justice and compassion.
* Hoarding: Sayyidina Ali (y) said: “When a man hoards food stuff (refuses to sell) even for a day, in order to gain from a price hike, his heart becomes hard”.
* Fraud: Uqba bin Amir (radhiyallahu anhu y) says: “It is illegal for a person to knowingly sell defective (flawed) merchandise, without informing him (the buyer of the defect). The Prophet (Pbuh) said: “He who regards the unlawful as lawful, does not believe in the Qur’an. Deceit in buying and selling is unlawful”.
* Monopoly: The Prophet (Pbuh- peace be upon him) says: “Whoever monopolises is a sinner”.
* Interest: “Allah will deprive interest of all blessings but will give increase for deeds of charity”.
* Regulated Prices: Anas (y) says: “Once they (the Companions) asked the Prophet (Pbuh) to fix Prices. He replied: “Allah alone is the regulator of prices. He curtails or provides amply....”
* Creditor: The Prophet (Pbuh) said: “May Allah show mercy to a person who is considerate when he sells, buys or demands payment”. He further said: “There was a trader who dealt in credit whenever his debtor was in straitened circumstances, he would say to his employees, ‘Pardon him, perhaps Allah will pardon us”. (When he died) Allah forgave him”.
* Debtor: “He is best among you who pays his debt in a good manner and clears it before its fixed time...”
* Employer: The Prophet (Pbuh) said: “Pay the labourer his wages before his sweat dries”.
* Employee: “O You believe! Fulfill your contractual obligations.”
* Management: The Prophet (Pbuh) said: “O Abu Zarr (y)! There is no wisdom like sound mangement, no piety like self denial and no virtue like good conduct”.
Fear of Allah
The Prophet (Pbuh) said: “Fear Allah wherever you are”. The fear of Allah Ta’ala is not confined to prayer alone, neither can Islam be relegated to superficial obedience. Islam has to be expressed in every sphere of human activity. Worship, trade and social interaction are constituent parts of religion. If any one part is removed from the equation, we have a lopsided and unbalanced religious ethic.
* Providence: The Prophet (Pbuh) said: “If you Trust in Allah with due reliance, He would sustain you as He sustains the birds. They get up hungry in the morning and return with a full belly in the evening”.
The recent collapse of Barkat Group in Mumbai and Al-Falah Investments in Delhi, duping by a host of Interest-free companies in Hyderabad and reports of embezzlement in a leading interest-free investment company in Bangalore, has shattered the confidence of common Muslims in the so-called interest-free institutions(IFIs). It has dealt a body blow to the concept as well as other interest-free institutions in India.
Non-professional and wrong investment was the prime reason behind the collapse of Barkat Group. Mohammad Hussain Khatkhatay, founder of the Barkat Group is an engineer with no exposure in banking, nor experience of running an interest free institution.
According to the sources close to Khatkhaty, instead of consulting experts and professionals from the banking, the Group acted on the advice of his colleagues. The recent collapse of Barkat in Mumbai and Al-Falah in Delhi has shaken the confidence of common man in these so-called “Interest Free Institutions”. It has dealt a body blow to other interest free institutions in India. Thousands of Muslim NRIs from Hyderabad have suffered even a much worse plight. A group of fly-by-night operators such as Franzan and Al-Zuby groups vanished with investments worth Rs. 15. They had inveigled the investors by offering exaggerated 40-45 per cent dividends and had even disbursed some amounts to a few investors.
Yet it was Mumbai companies that set off the most dangerous alarms because the Barkat and Baitun Nasr had built up reputations since long and the people at the helms enjoyed had impeccable credentials. Non-professional and wrong investment was the prime reason behind the collapse of Barkat Group. Mr. M. Hussain Khatkhaty founder of the Barkat Group is an engineer with no exposure in banking, nor experience in running an IFI.
Sources close to Khatkhaty point out that instead of consulting professionals from the banking, he relied on the advice of his colleagues to invest in real estate. With the crash in real estate values, Barkat’s fortunes also sank never to rise after 1996, which led to its collapse and ultimate closure.
A closer scrutiny of the board of directors of the Barkat group revealed that most of them had no background of banking. They were from the field of business, architecture, and construction etc. A cursory look at the failure of Barkat Group shows that one of the important causes of failure was not dishonesty but improper assessment of risks. The short-term deposits were either invested in real estate or in other risky business such as poultry farms, goat farming, and plantations.
Why then Barkat Group and other such IFIs invest in such risky ventures? Where to invest deposits is the single most important issue for the Muslim investors. The conventional banks can invest in Government bonds, securities, fixed deposits and co-operatives. Since an element of interest is involved in all these, Muslim investors have real problem at hand. “Avenues of investments are not available for IFI deposits”, Says Abdul Wahab Dalvi, former Managing Director of Barkat’s Baitun Nasr. That was the precise reason for the collapse of many IFIs.
According to experts, since IFIs are not allowed by sharia to build up reserves out of the costs to be recovered on the basis of loans, to strengthen themselves they cannot compete with the conventional banks, which have a strong capital base. “Whatever small reserves such institutions might have gathered are not allowed to be invested by the law of the country in any manner other than the prescribed one i.e. interest bearing instruments”, rues Mr. Dalvi.
The biggest hurdle in the success of IFIs according to A. Haseeb, former executive director, RBI is that they are not being registered as companies. They are also prohibited by section 7 of the BR Act 1949 from using the word “Bank”, “Banker”, or “Banking” in their name. The very absence of one of these words keeps the potential depositors away from these institutions. Nor can they extend cheque facilities to their depositors, says Haseeb.
The very definition of Banking given in S (6) of the BR Act, has become a hurdle in the progress of these IFIs as it makes their area of operation restricted to their own shareholders (members), said Mr. Haseeb.
Thus with such working limitation under the Banking Act, it is no wonder that institutions like Baitun Nasr collapsed being unable to face even minor crisis.
Moreover since such institutions function on the principles of ‘no interest’, their area gets restricted to certain categories of persons and communities. These institutions irrespective of their form, size and reputation could not succeed in cutting across the communal barriers and attract deposits from the public as a whole.
Moreover the unresolved controversy about the validity of the service charges has marred the growth of IFIs. Asks Haseeb, “From where these institutions raise the finance needed for maintenance?”
Besides, interest-free institutions have also to deal with bad debt, and government charges for cooperative education. Since they are at disadvantage with conventional banks, they have to provide personalized service by going door to door to raise deposits and other services. It costs a lot of money since service charges levied by IFIs are still controversial vis-á-vis its differentiation to interest, depositors hesitate to open account with them.
Dr. Phiroz Poonawala, President of ‘ Holistic Turnaround Management Foundation’, attributes the failure of Baitun Nasr to its faulty model of operation. These interest free institutions are destined to fail as they adopted more or less similar model of the conventional banks. They failed in training entrepreneurs in financial management and had no set-up to closely monitor their investments, he said.
According to Prof. Nejatullah Siddiqui, an economist who pioneered the concept of interest-free banking, profit sharing system of banking would be more efficient, stable and just than the one we have now.
Ironically inspite of more than 12 per cent of the population, Muslims in India have failed to come up with a successful model and trustworthy mechanism of interest-free banking. Still there is lot of confusion amongst the scholars on this subject, which leaves Indian Muslims without an alternative but to rely on conventional interest-free banking. Still worse, a lot of con-men are entering the field and duping in unwary investors merely by playing on sentiments while the fact is economy and emotions do not gel.