K.K. ALI, who had been working with Al-Raji Bank in Saudi Arabia, which is the largest Islamic bank in the world, for 20 long years, is now Chief Executive Officer of Alternative Investments and Credits Limited (AICL). In an interview with DR. WAQUAR ANWAR, he speaks on the challenges as well as achievements of AICL, and presents asset-based option as the only alternative to the financial problem the world has been facing today. Excerpts:
Al-Raji, you think, is a true Islamic bank!
Yes, that is a true Islamic bank dealing in all sorts of Islamic financial products. It started as a partnership firm of Al-Raji brothers. Dr. Ahmad Totonji persuaded them to proceed in Islamic banking activity. I have a cherished memory of seeing from close quarters the work style and activities of Dr. Totonji, who had been with them for a long time.
AICL is working as non banking financial company. Its name includes the word ‘alternative.’ Does it signify something specific?
The very concept of the organisation is to present an alternative to the conventional banking and financial system. Before its launch we had a long discussion on its name. The point of discussion was whether it should be Muslim sounding name like Crescent, Barkat, etc. or anything else. The people who were at the helm of affairs, particularly Prof. K.A. Siddiq Hassan decided that the name itself should suggest that we are presenting an alternative. The very name should give the message that it is an alternative to the existing system.
Do you think that the idea of providing an alternative has served?
I will not say that we have completed our task. We are in the process and have travelled some distance in that direction. We are trying.
What have been the achievements of AICL?
The first and foremost achievement is that we could market a concept to the business community, inviting them to come and see whether the alternative we are providing serves their purpose or not. Whether it is applicable to them or not? What are their aims and what are our aims and how we are useful in the fulfilment of their business aims? Another achievement is that it has become financially viable. We have been paying dividends to our share holders, although not any big amount, continuously for the last four years.
What challenges you are facing?
There are a lot of challenges. I can start with the products we are dealing in. We mostly deal in musharka (partnership). There are inherent problems and limitations in this musharka. Somebody is doing business away from us. This is a question of credibility and honesty of the people who are in business. We cannot have a direct control on a daily basis. Their honesty is the main thing, actually.
Another problem relates to taxation. Because of the tax burden we are not able to give much attractive dividend to our share holders. We are trying to divert our activities by indulging in our own business so that we can earn more profit. For that purpose we have formed a subsidiary company to do infrastructural development activities like construction of villas, housing complexes, etc. Basically, we are now in trading, manufacturing and musharka activities.
Do you find compliances required by Reserve Bank of India, Registrar of Companies, including periodical returns, reports and special queries, troublesome and problematic?
No, No, not the least! From my experiences I can say it is not any problem. We are not to play with the regulations. Being straight and transparent in approach takes care of all such things. It is the question of following the rules of a country you live in. Reserve Bank of India is a good regulator as compared to the regulators of other countries. We do not face any problem. We go by rules. We file returns in time. Obviously, there are limitations as not much leeway is available. For example, if you want to accept deposits, there will be regulatory issues to be tackled. NBFCs are well regulated. I can refer to our own experience here. NBFCs can accept deposit only after earning profits continuously for two years. We have been earning profits continuously for the last four years and so we are eligible for this facility.
However, certain procedures have to be sorted out and now we have got the clearance to go ahead. We pursued the problem and sorted out the issues, and with the cooperation of RBI officials issues were resolved. Their approach is that they have to go slow and cautiously to protect the interest of the depositors. We will be opting for private placement with specific undertaking by the depositors severally that they are ready to accept lower than the stipulated returns on their deposits. We cannot opt for public placement of the deposits in this fashion.
Have you started taking deposits?
No, not yet! There remain certain formalities to be completed. However, we have got approval in-principle of RBI.
Do you think that this experiment of yours is both technically feasible and financially viable? If it is so, can’t you grow it and reach places outside Kerala?
Definitely, it is possible and we should do work under this format of NBFC in other parts of the country. Such experiments should be under the supervision of social organisations like Jamaat-e-Islami Hind. We in Kerala cannot open our branches outside Kerala because of administrative constraints. Our experiment should be taken as model and similar activities should be started in other parts of India. Legally, we can also grow at other places. But the infrastructure at our command will not permit to do it ourselves. We can liaise and provide whatever support is possible for this sort of activities and InshaAllah our expertise in the field will be found suitable and relevant.
With the kind of morality prevalent in our country and the amoral practices of the businessmen, how do you function, because your model requires good business behaviour?
We are very selective. Suppose one person comes to us with a proposal. We utilise our internal network. We study the proposal and consider the person’s honesty, ability, repayment capability, etc. in whatever way we can do. Of course as human beings we have limitations, but we do this exercise with utmost seriousness. Using the infrastructure of the Jamaat there, we do enquiries and assessments. We do monitoring, pre-monitoring and post-monitoring on such bases. Alhamdulillah, this system has been a success in most of the cases. We know that this system causes delays. But the time taken is purposeful.
There may be some genuine cases of failure. How do you proceed in those cases?
We consider those cases sympathetically and take support of their society and its institutions like the Jamaat.
What is the ratio of your non-Muslim clientele?
So far non-Muslims have not approached us. Although we are popularising this alternative through reports and publications and our doors are open. Many people approached us but no one has come forward to avail our facility. One reason may be that insists that our client should be financing arrangements solely with us. One cannot have facility with us as well as with the banking channels. These two cannot be mixed up. We hope with the passage of time reservation on anybody’s part will be over. We shall welcome participation of every citizen and class of persons in our novel experiment. AICL till date has been working in the Muslim community and maybe we lack proper propaganda to make it attractive outside this community.
Is there any other non-banking financial company in Kerala that is working in your style?
There are lots of NBFCs in Kerala but none of them is akin to us. Ours is unique. Someone started in Kozhikode but that was not shariah compliance and finally that left the scene.
Are you engaged in murabaha mode of finance?
No, we are only working in musharka arrangement.
What is the ratio of successes in such musharka finance that you entered into?
We have been by and large successful. I can remember only one case of failure where the person we financed proved to be incapable with unsound mind. So in that case also the failure was not on account of any dishonesty. Although the amount involved was small, there was a failure in business and we had to forgo our share of finance.
Islamic banks world over are mostly engaged in murabaha finance whereas you are engaged in musharka finance.
Sharia experts in our area particularly those from the Jamia in Shantipuram are reluctant in the case of murabaha finance considering that to be somewhat akin to charging interest. We have a Shari’ah Board based in Shantapuram. They guide us in selection of our financial products. We refer to them our problems and they give us necessary advice.
What is the requirement of initial capital for starting an NBFC?
Initial capital required to start an NBFC nowadays is 2.5 crore.
How about staffing and the training of workforce?
I am myself from an Islamic bank. For our junior staff we have decided to engage only persons with the requisite qualification and training. We opt for and prefer graduates who have undergone one year diploma course in Islamic banking and finance offered by the Jamia Islamia at Shantapuram. Our staff members that way possess the required qualifications. Further we have engaged a person from a chartered accountancy firm with professional qualification and Islamic background. This started with persons from conventional banks before I was roped in!
What is your message for persons who may be interested in working under the banner of NBFC?
First and foremost is that one cannot compromise on transparency. It should be cent per cent transparent. Even if one may not declare high rate of dividend because of tax burden and other regulatory requirements. Do not compromise on rules. Go by rules. Another requirement is that this venture should be under the supervision and control of social entities like the Jamaat. Islam is a complete way of life. Finance is not out of that. At this particular stage in the world where debt based finance is facing problems – inherent problem – the asset-based option propounded by Islamic banking and finance presents an alternative. It is the right time to present before the world this alternative option. If we talk about this and propagate the core idea of Islamic banking and start some work in this area, this will have more appreciation and more acknowledgements from the community and the world at large. This is the right time to talk and do something on Islamic banking.
But there is not much scope for this in the existing law of the land. What can be done till suitable changes in laws and regulations are enacted?
Cooperative model can be adopted if we do not have sufficient fund and manpower that is required for a non-banking finance company.