Islamic Finance Education in India – Strategizing for a Paradigm Shift

PA Shameel SajjadDesignated Partner & Chief Executive Officer

Zirva Business Solutions LLP

Islamic Academic Conference – Al Jamia Al Islamiya, Santhapuram; 14 Jan 2012

Presentation Flow

• Training and Capability Building in Islamic Finance – The Global Context

• Key Issues Islamic Finance Education Should Address

• Basic Requirements for Islamic Finance Managers• Islamic Finance – The Indian Saga• How to Build the Capabilities – The Indian Context• Islamic Finance Education – Model for a Paradigm

Shift

• A Gallup poll indicates Muslim masses in several Muslim countries would like to have Shari’ah rule in their society and state:– In Jordan, 54% men and 55% women want

Shari’ah as the only source of legislation.– In Egypt, 70% men and 62% women favor

Shari’ah as the only source of legislation.

- John Esposito, Who Speaks for Islam: What a Billion Muslims Really Think, New York, Gallup Press, 2007, p48

• A phenomenal rise in Islamic Banking, Islamic Investment, Takaful and Islamic Businesses in the past four decades confirms a desire of the people to go for halal and avoid haram in their financial matters.

• The collective conscience of the Muslim Ummah, in the past fifteen centuries, never felt comfortable with interest-based economy, even in the so-called dar-ul-harb context.

• The issue today is not viability of Islamic businesses and finance. Even the hardcore capitalist world has resorted to Islamic windows in its conventional banking and financial institutions.

• The real problem is the workforce, or the human capital, needed for Shari’ah-compliant management of business and finances of the people.

• The human resource produced by the conventional academic and capacity-building programs cannot satisfy the demands and challenges of the Islamic financial institutions.

• We need highly-competent, motivated and involved persons with required knowledge of conventional banking and finance as well as knowledge of Islamic Shari’ah.

Key Issues Islamic Finance Education Should Address

Why interest is prohibited in Islam. What are current Islamic financial instruments (mudaraba,

musharaka, murabaha, ijarah, ijara-wa-iktina, qard hasan, etc.). What is takaful and how it differs from conventional insurance. What is the role of Shari’ah experts in Islamic financial institutions. Do existing resource of fiqh of all five major schools of thought

provide satisfactory response to modern financial problems. How to maximize efficiency and quality assurance in Islamic

financial institutions. In what sense customer service is different in Islamic financial

institutions. What should be the policy for HR recruitment, retention, motivation,

promotion, career planning and change management. How to develop global networking of Islamic financial institutions.

Basic Requisites for Islamic Managers

1. Working knowledge of Arabic needed for understanding of the Qur’an, the sunnah and fiqh literature.

2. Knowledge of ayat and ahadith that deal explicitly and implicitly with financial matters.

3. Knowledge of Islamic jurispudence, the methodology of usul-al-fiqh and the objectives of Shari’ah as well as the qawaid-al-fiqhiyyah.

4. Knowledge of fiqh al-Maal and al-Milkiyyah (property and property rights).

5. Knowledge of fiqh al-Buyu’ (Islamic laws relating to market and exchange).

6. Knowledge of application of Shari’ah in financial transactions with particular emphasis on Islamic contracts of exchange as a method of financing, such as mudarabah (agency, trust financing), musharaka (partnership, profit-sharing), ijarah (leasing), bai’ murabaha bi saman ‘aajil (markup leased trading with deferred payment), bai’ istisna’ (construction contract), bai’ salam (forward sale), etc.

7. Knowledge of comtemporary innovations in the use of sale of contracts as tools for financing, such as sukook.

8. Skills needed for customer satisfaction.

9. Knowledge of views of contemporary Muslim thinkers on financial matters.

10. Competence to conduct ijtihad in development of new Islamic products.

Islamic Finance - The Indian Saga

• According to common belief; modern Islamic finance started in Egypt by the formation of Mit Ghamr.

• This is against actual facts.

• Indians are the pioneers of modern Islamic finance thought and practice.

Islamic Finance in India – Timeline

1920s

• Writings started in response to the colonial interest based financial system. The Ulema started focusing on the uniqueness of Islamic economic system and its distinction from the capitalistic and socialistic economic systems.

• ‘Anjuman Imdad e Bahmi Qard Bila Sud’ was established in 1923 in Hyderabad.

1930s

• Moulana Hifur Rahman Seoharvi published ‘Islam ka Iqtisadi Nizam’ (Economic System of Islam) in 1938; which was the first book level treatment of the subject.

• ‘Patni Cooperative Credit Society’ was formed in Gujarat in 1939.

1940s

• ‘Muslim Fund Tanda Baoli’ established in 1940 in Rampur – Uttar Pradesh.

• Anwar Iqbal Qureshi published ‘Islam and the Theory of Interest’ in 1946.

• ‘Islami Maashiat’ (Islamic Economics) was published by Syed Manaazir Ahsan Geelani in 1947.

• ‘Islamic Usool par Banking’ (Banking on Islamic Principles) was published by Naeem Siddiqui in 1948.

THE PARTITION EFFECT

• Migration of large number of intellectuals, industrialists and financial experts to Pakistan badly affected academic & practical efforts in India.

• Large scale communal riots also affected the working and further establishment of Islamic finance institutions in the country.

1960s

• ‘Contemporary Literature on Islamic Economics’ (A Landmark Survey on Islamic Economics literature).

• Banking Without Interest, M.N. Siddiqi 1969.

• Muslim Fund Deoband, 1961.

• Toor Baitul Maal, 1966.

1970s

• Muslim Fund Najibabad, 1971.

• Baitun Nasr 1973.

1980s

• Saw the rise of profit oriented institutions.

• Barkat Group, 1983.

• Al Ameen, 1986.

• Al Barka Finance House, 1989.

1990s

• Establishment of the Indian Association for Islamic Economics.

• Starting of Islamic Economics Bulletin and Islamic Economics paper at Aligarh Muslim University.

• Proliferation of Islamic finance companies.

• Tata group launches India’s first scheme targeting Muslim community’s religious sentiments, 1996.

2000s

• IBF.net (Islamic finance courses).• Al Jamia Al Islamia; Shantapuram, Islamic

Economics & Finance PG Diploma.• AMU Committee on Islamic Finance Courses.• Aasra Coopretive Credit Society, 2001.• Alternative Investments and Credit Ltd, 2000.• Emergence of Islamic stock broking firms, 2004.• UTI, Reliance, Taurus, Bajaj Allianz, Benchmark,

Kotak, Kerala Government (KSIDC).

How to Build the Capabilities?

• The first step is to recognize the fact that building conventional financial and managerial wisdom is the starting point.

• This financial wisdom can then be Islamically attuned.

• What is required is an integrated approach where we recognize the value of mainstream certifications in shaping the financial acumen of a person.

• We need not duplicate efforts; but can instead concentrate on training students for many examinations and intensely training them on the Islamic side.

Important Financial Training Institutions in India

National Institute of Securities Markets

• Certificate in Financial Engineering and Risk Management.

• Pocket Money – Financial Education in Schools.

• Certification in Securities Operations and Risk Management.

• Certification in Mutual Fund Operations.

• Certified Personal Financial Advisor.

Insurance Institute of India

• Professional Examination

• Diploma

• Specialized Diplomas

• Agents’ Examination

NSE’s Certification in Financial Markets (NCFM)

• Financial Modeling Module• Financial Services Marketing Module• Issue Management Module• Equity Research Module• Market Risk Module• Modules of Financial Planning Standards Board of

India • Commodities Market Module• Investment Analysis and Portfolio Management

Indian Institute of Banking and Finance (IIBF)

• Diploma in Banking and Finance• Advanced Wealth Management Course• Certificate Examination in SME Finance for Bankers• Certificate Examination in Quantitative Methods for

Banking and Finance• Certificate Examination in Trade Finance• Certificate Course for Business Correspondents /

Business Facilitators

Islamic Finance Education – Model for a Paradigm Shift