Mewat in the state of Haryana finds its place in history as the erstwhile parliamentary constituency of Maulana Abul Kalam Azad. But despite being the arena of the first education minister of the country, Mewat continues to be backward socially, economically and educationally. Located at just around 60 km from national capital of Delhi and just a few miles from the glittering modern cyber city of Gurgaon, Mewat gives a totally different picture. Agriculture along with allied activities is main source of livelihood of the people who are predominantly Muslims. The agriculture in Mewat is mostly rain fed except in small pockets where canal irrigation is available.
The headquarters of Mewat district, Nuh town, which itself is ill equipped with amenities and infrastructure, invites our attention these days for a completely different reason. It is from here that BASIX group is operating Bharatiya Samrudhi Finance Limited, a Micro Finance NBFC. The organisation is providing loans for petty farmers and traders, using various Islamic Finance tools like Diminishing Musharaka (Equity finance), Murabaha (Cost plus Mark up) and Bai Salam (Advance purchase) ( See Table).
Vijay Mahajan, President Micro Finance Institutions Network (MFIN) of India, is the founder and CEO of BASIX. Vijay has been listed in “60 Outstanding Social Entrepreneurs” by the Schwab Foundation for Social Entrepreneurship at the World Economic Forum, Davos, 2002; “India’s 50 Most Powerful People” by Business Week, 2009 and among “the twenty people who will reform India during this decade”, by the Indian Express, 2011.
A delegation of Indian Centre for Islamic Finance (ICIF) consisting of its chairman Dr. Ausaf Ahmad and general secretary H Abdur Raqeeb visited the BASIX office at Nuh on 15 September 2014, interacted with the officials and discussed the operations and functions.
BASIX had until now extended its lending hand to around 400 people under different schemes. The beneficiaries belonging to different communities are from the most vulnerable sections of the society. These people usually don’t fall under the purview of institutional credits and might have easily fallen prey to the hands of moneylenders and never could have escaped from the vicious circle of debt.
The organisation, registered as NBFC- MFI under Reserve Bank of India, is gaining confidence of people with its just and ethical financial schemes. The principles of Islamic finance and various Islamic Finance products are explained to the villagers in layman’s language before starting operation in any particular village.
“The atmosphere here is unique,” said Mr. Naemur Rahman, Manager of the Bharatiya Samrudhi Finance Limited. “Every village has two or three kirana stores, cosmetic shops and tailoring shops. Usually the people make all the purchases locally.”
“Cost plus Mark up or Murabaha is used to provide loans for these petty traders. It is paid back in two years,” added Mr. Rehman.
Syed Zahid Ahmad, consultant and Shari’ah expert guiding the project, explained how Bai Salam was devised and customised to be applied locally. “Now we are practising Bai Salam on an experimental basis and provide loan for wheat and barley cultivation for 5 farmers,” said Mr. Zahid.
“In Diminishing Musharaka, part of the money is provided to purchase buffalos and the amount is paid in instalments and finally the customer becomes the owner after paying fully,” he added.
ICIF delegation also met some of the beneficiaries and had brief interaction with them. They were explicitly satisfied and happy about the services extended by the Bharatiya Samrudhi Finance Limited and hardly defaulted in their repayment. Interestingly, the repayment level is also much higher than the conventional interest based microfinance institutions.
The delight on the face of Afsana, a street vendor selling bangles, when asked about BASIX, was a plain expression of appreciation and recognition of the activities of the NBFC.
At a time when Financial Inclusion is the buzzword in the country, Mewat illustrates us the significance and potential of Islamic Finance products in realising the aspirations and needs of the underprivileged sections of the society. This is a model that can be implemented in any part of the country with little modifications and can be the true vehicle of Financial Inclusion.
In this context, it will be appropriate to recall the words of Dr. MS Swaminathan. Speaking at Karuna Ratna award presentation function in April 2010, he said the exorbitant lending rates charged by moneylenders in Vidarbha had created a vicious cycle of debt and suicide in the region. “Even yesterday we heard news about 30 farmers who committed suicide in Vidarbha. Islamic banking, which propagates zero interest lending, could hold the key to solving this crisis,” he averred.
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Bai Salam
| Full forward purchase (such as of a crop or of a manufactured item like a carpet) |
| Full/part forward payment is made at the time of contract. This serves as working capital for the farmer/weaver | |
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Murabaha
| Owner of capital buys the goods (e.g. raw material) and sells to the beneficiary at cost plus margin |
| May have buy back arrangement of finished goods after value addition | |
| Sale is on deferred basis | |
| Ownership and risk of goods remains with capital owner until full settlement | |
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Musharaka
| One party places capital with another |
| Both share the risk and reward | |
| Profit sharing can be any ratio agreed, but losses must be proportionate to the amount involved | |
| In agriculture, share-cropping has the characteristics of equity financing |