New Perspectives on Profit Sharing and Risk
Edited by Munawar Iqbal and David T. Llewellyn
Chapter 9: Islamic financial institutions of India: their nature, problems and prospects*
Iqbal 03 chap 9 9/11/01 3:09 pm Page 169 9. Islamic financial institutions of India: their nature, problems and prospects* M.I. Bagsiraj 1. INTRODUCTION There are over 300 Islamic financial institutions (IFIs) operating in India.1 They are not banks, but are bank substitutes, because the Indian Banking Act does not provide for interest-free banking operations. Thus it is against great handicaps and constraints that various IFIs are operating and gradually expanding their sphere of economic influence in India. Without any statutory provisions or backing from the secular government, they are struggling admirably to promote the Islamic financial system to generate economic welfare through an alternative financial model. At a time of economic liberalization, privatization and globalization, they are creating new avenues and hopes for the betterment of the socio-economically beleaguered Muslim minority of India. The IFIs of India are neither uniform in composition nor homogeneous in their operations. They may be classified into four broad categories: 1. Financial Associations of Persons, small baitulmals2 or funds which are not registered under any provision and which are part of the unorganized Islamic financial sector. 2. Muslim Funds or Islamic Welfare Societies registered either under the Societies Act or the Trust Act. 3. Islamic Cooperative Credit Societies registered with the registrar of cooperative societies. 4. Islamic investment companies registered under the Companies Act. The growing environment of economic liberalization and privatization has opened new opportunities for IFIs and Indian Muslims. However, the enactment of the Non-Banking Financial Companies (NBFC) Act in 1998...
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