#Islamic #banking will be most relevant to SME sector: Interview with Zafar Sareshwala

Interview with director and head of Islamic Corporation for Development's India operations.
For the first time, the Jeddah-based Islamic Development Bank has forayed into a non-member country by announcing setting up of a non-banking financial company in India through its 100% subsidiary Islamic Corporation for the Development of the private sector. Based on the Islamic principle of not charging interest on loans, ICD will operate through a registered office in Mumbai, with prominent businessman from Gujarat, Zafar Sareshwala, heading its India operations as director. In an interview with Vinay Umarji, Sareshwala talks about how the NBFC will play a catalyst for small businesses by sharing their profits and losses instead of charging interest on finance extended.

What kind of entity is Islamic Development Bank setting up in India? How will it function?

IDB is a multi-lateral bank like World Bank which does development work in its member nations and has an authorised capital of $150 billion. IDB has not worked in a non-member state before this. During Prime Minister Narendra Modi's recent trip to Saudi Arabia, three developments took place. First, IDB announced donating medical mobile units worth Rs 380 crore. These are full fledged hospital which will be maintained by IDB for five years. These will be used in rural areas, beginning with 30 such units in Gujarat, followed by Bihar and Assam. Secondly, IDB has signed an agreement with Exim Bank for a $100 million line of credit which will result in IDB giving guarantee for Indian exporters in its member states such African or middle Asian Muslim nations.
Thirdly, IDB's 100% subsidiary ICD will set up a NBFC in India as per RBI regulations with a paid up capital of Rs 200 crore. And it is an NBFC that it will function where it will engage in regular financing activities to businesses.

How does the Islamic or participatory banking work?

Under the Islamic or participatory banking, the NBFC of ICD will not charge interest. Rather it will share in the profit and loss of a venture. It is based on Islam's fundamental principle of being part of risk and reward both. The profit or loss sharing is pre-determined before disbursing finance after a thorough due diligence on the prospects of the business. The NBFC will go with a minimum share of 15% but it will vary from industry to industry. We don't want to eat into the entrepreneur's profits. We want to come to him as his catalyst and boost his entrepreneurial spirit. It is a win-win situation for both. Entrepreneur doesn't have to worry about paying interest while the NBFC could end up earning ample profits if the business succeeds which could cover losses elsewhere.