AMU LAUNCHES NEW COURSE IN ISLAMIC BANKING AMID SKILLS SHORTAGE

Javid Hassan

By Javid Hassan

In a trail-blazing move, Aligarh Muslim University (AMU) will introduce later this year a one-year post-graduate diploma course in ‘Islamic Banking: and Finance.’ It has been designed by Dr Mohammad Nejatullah Siddiqi, winner of the King Faisal International Prize in Islamic Studies, who also taught economics for several years at King Abdul Aziz University in Jeddah.

The impending launch of the new course should be seen against the backdrop of the first Sebi-registered Shariah-compliant venture capital fund in the country set up last month in Kozhikode (Kerala) by a group of businessmen and professionals. Known as the Secura India Real Estate Fund, it is the first private venture capital fund in the state modeled on the Shariah laws and regulations.

The AMU course takes on board the Islamic principle that prohibits the use of Riba (interest), giving rise to the interest- free banking system. AMU’s academic council, which supervises academic affairs, endorsed the introduction of the course, which will start from this academic session. Some 20 students will be admitted to the course initially.

Under this system of banking, the depositor shares the risk with the bank unlike other banking models. The owner of the capital is also entitled to a share in the bank’s profits, according to Dr. Siddiqui, who observes that this type of banking system discourages speculation or gambling with the depositors’ money. It was the corporate greed that triggered the housing mortgage crisis in the US with all its global consequences and more recently the Satyam scandal case, in which the IT major and its auditors played a major role in trying to cover up all shady transactions involving the company’s bigwigs.

The course will enable students to launch a career in Islamic banking that is gaining traction not only all over the Middle East and Southeast Asia but also in the US and the UK. Dr. Siddiqui points out that as of now no university in India offers a full-fledged course in Islamic Banking, though some spade work on the subject has been done in Karnataka and Pune universities. But it does not figure in the syllabus of any university.

Dr. Siddiqui believes that though there are no Islamic banks in India, a few non-banking cooperatives are operating on those principles in Karnataka and Mumbai. He is upbeat about the prospects of Islamic banking opening up in India, as it can attract NRI investors. Some of the top Indian companies are also planning to launch Islamic financial products to cater to the needs of Muslims who comprise 12 percent of India’s 1.2 billion population.

Yet, there is a shortage of personnel with expertise in this field. Several vacancies have been reported in Islamic banks in the UAE and other Gulf states, reflecting the growing demand for Shariah-compliant investments that are projected to reach $1.4 trillion by 2010, up from the current level of $ 1 trillion.

Emails received by this journalist during the last few days testify to the expansion of Islamic banking products and services in the UAE and Saudi Arabia in the credit control, auditing, marketing and other sections.

The surge in the demand for Shariah-compatible investments and other Islamic assets from an estimated 1.6 billion Muslims around the world has already spawned the growth in educational institutions offering such courses. The Institute of Islamic Banking and Finance in Hyderabad became the country’s pioneering venture in launching a course in Islamic Economics, Banking and Finance.

According to Mohamed Ridza, a leading consultant on Islamic finance in Malaysia and managing partner of Mohamed Ridza & Co, the Islamic financial system is projected to account for approximately 4 per cent of the global economy as part of its long-term growth.

Despite the overall gloomy projections on the international economic scene, the Islamic banking industry, currently worth an estimated $1 trillion, is likely to emerge as one of the fastest growing sectors in the world of finance. Islamic banks, Ridza points out, have cushioned the impact of global recession due to their built-in checks within their regulatory framework. This has improved their performance to a stage where the Islamic banking industry is now anticipating a growth rate of 15 per cent annually.

A major factor behind this trajectory of growth is the fundamental Islamic banking principle of profit and loss-sharing scheme, known as Mudarabah, under which banks forge partnership with entrepreneurs. This obliges the banks to be cautious in their approach in sharing their risk and evaluating each proposal carefully before providing funds to the investor. The other aspect is the cost plus scheme, or Murabaha, where banks own assets desired by customers and sell them on the installment basis at an agreed price in line with the Islamic principle of interest-free payment.

That the system is working well has been documented by their impressive track record in non-Muslim countries. Even in an ultra secular country like Turkey, Islamic finance over the last few years has witnessed impressive growth in terms of branch expansion of the banks offering such products and services. Today, the number of branches total 450, while the deposit base of participation banks (as they are called in Turkey and not Islamic banks) has increased from 1 percent to about 5 percent.

Since the western banks, including the internationally renowned HSBC, have already introduced Islamic finance as part of their investment portfolios, Indian banks should seriously consider such an option in the interest of job creation and economic growth. It is an ideal financial instrument for raising funds in the infrastructural sector relating to water, power, telecommunications and road-building projects, which the Congress-led UPA government has identified as a priority in its economic agenda. It has also pledged to promote Islamic banking in the country.

At a conference on “Islamic Finance and World Economy” organized by AMU’s Department of Business Administration on March 29 this year, Shashi Krishnan, Chief Investment Officer of Bajaj Allianz, disclosed that the volume of transactions in India’s Shariah-compatible stocks exceeds that of any other Islamic country. He pointed out that more than 50% of the investors in these stocks were non-Muslims. All this augurs well for the future of Islamic banking in India, where conditions for its growth are also promising.