No harassment in Islamic banking system

No harassment in Islamic banking system

In the present scenario in Kashmir, why should borrower alone suffer when we know the whole Kashmir was hit by a storm? It''s because those who have money are immune to the risk and those who work hard to make money bear all the risk.

There has been some relief for the borrowers of bank's money in Kashmir now since the RBI has finally approved the restructuring of their loans. There has been no business for past 5 months, due to the popular uprising in the valley. The businesses, especially the new entrepreneurs who had taken loans for their start-up projects couldn't make money for no fault of theirs. So, there was no way for them to pay their EMIs back to the bank. About 2, 00,000 loan accounts were on the verge of being Non-performing assets (NPAs) and the loan amount of Rs. 6000 crores had turned 'stressed loans'. For those who don't know, the restructuring of the loan means that the new loan replaces the outstanding balance on an older loan, and is paid over a longer period, normally with a lower instalment amount. It does not mean a part of loan has been forgiven. It's rescheduling of instalments, which is why it is also termed as the rescheduling of loans.

It should be noted that the RBI had actually turned down even this request made by the J&K State level banker's committee just recently. And now the political pressure has made them agree to it. The banks had literally begun to harass their clients There has been some relief for the borrowers of bank's money in Kashmir now since the RBI has finally approved the restructuring of their loans. There has been no business for past 5 months, due to the popular uprising in the valley. The businesses, especially the new entrepreneurs who had taken loans for their start-up projects couldn't make money for no fault of theirs. So, there was no way for them to pay their EMIs back to the bank. About 2, 00,000 loan accounts were on the verge of being Non-performing assets (NPAs) and the loan amount of rs. 6000 crores had turned 'stressed loans'. For those who don't know, the restructuring of the loan means that the new loan replaces the outstanding balance on an older loan, and is paid over a longer period, normally with a lower instalment amount. It does not mean a part of loan has been forgiven. It's rescheduling of instalments, which is why it is also termed as the rescheduling of loans.

It should be noted that the RBI had actually turned down even this request made by the J&K State level banker's committee just recently. And now the political pressure has made them agree to it. The banks had literally begun to harass their clients. Such undeserved harassment of sincere borrowers, by the interest-based banks, should serve as the eye-opener for the people. When we say that Islamic banking is based on justice and equity, it's not rhetoric. As I said in my last column, right from the day, when our entrepreneurs take loans for their business, they start with anxious and burdened mind. The thoughts of failure and bank taking over their collateral keep on haunting them. They know that the bank doesn't care if they succeed or not. The financial institute has loaned money and it wants it back on time along with the interest component. An Islamic bank, under the agreement of Mudaraba, thoroughly analyzes your business plan. If they approve it, it means the idea is really workable. And once the profits start rolling in, you give the bank the pre-negotiated share of it. In the case of failure, you are not liable to pay back anything, since the bank shares risk with you. You lose your time, efforts and energy while the bank loses money. Another agreement called Musharaka is the same except that you also shell out a portion of the initial investment, which motivates you to perform better and that the bank will also have a say in the management of your business, which is not the case under Mudaraba. The Mudaraba is known as the silent partnership while Musharaka is a partnership financing.

In the present scenario in Kashmir, why should borrower alone suffer when we know the whole Kashmir was hit by a storm? It's because those who have money are immune to the risk and those who work hard to make money bear all the risk. This is called Risk transfer while Islam teaches Risk sharing. Had our financial industry been following Islamic commercial Jurisprudence, the bank would have stood along with the borrowers holding their hand, but it's sitting on their throats, intimidating them to pay knowing well they can't make money. This is because the Interest-based system is innately based on injustice and Islamic banking instills social cohesiveness and fairness.

This is not to blame the J&K Bank management or even the RBI. This is how the conventional banking functions and these institutions are bound by the principles of the financial industry, to do what they are doing.Therefore, it is imperative that all of us join hands together and strive for Islamic finance in Kashmir.

Mehboob Makhdoomi is a Harvardian & an MBA from Pennsylvania University (IUP) -the United States with a Research degree from Cardiff University, United Kingdom.

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