In order to highlight and explore the possibility, acceptance and the legal framework available for Islamic Finance in India, Khurshid A. Najmi, an expert in project finance who worked for the Central Bank of India and Bangladesh, presented his experiences on “Scope of Islamic Finance in the Existing Legal Framework in India,” at a programme organised by Forum for Group Discussion on Economic Issues [FGDEI], a joint forum of Sahulat and Radiance Viewsweekly in the capital on 25 May.
Najmi, in his presentation, tried to simplify the issue to understand commercial lending and financing in the light of conventional and Shari’ah approach. The sharp distinction between the two is that lending is based on risk shifting in conventional approach and financing is based on risk sharing in the Shari’ah approach.
In the beginning, Najmi outlined some of the characteristics of Shari’ah based financing where money has been characterised not as a commodity but rather only a means of exchange. Charging of interest is unjust because it allows a financier to gain reward without sharing the risks associated with the transaction. An increase over the principal (in a loan transaction or a gain from a debt) as compensation for the use of fund over a time period is held as Riba and is declared as Haram. A financier must share the risk inherent in a trading or investment transaction.
Impact of Shari’ah on Islamic Jurisprudence (Fiqh) and how it is different from Interest-based financing was also talked upon. In his presentation he laid emphasis on the impact on Islamic jurisprudence and clearly defined right to property under conventional law and under Shari’ah. Under law, transfer of document evidencing right transfers the property whereas under Shari’ah transfer of document evidencing right does not transfer the property. Possession of goods is not necessary to effect transfer under law whereas under Shari’ah possession of goods in the hand of the seller is necessary to effect transfer. He also discussed in detail the provision of financing under conventional law and under Shari’ah.
Najmi concluded that the Indian commercial law does not come in the way of carrying out Shari’ah compliant financing. He also stressed on the need for greater investment and finance in social projects and for better infrastructure.