India must allow Islamic banking practices for growth

At present there is no system of interest free finances to the farmers and through future trading we can only predict future market prices, but cannot arrange genuine buyers for the agricultural produce.

By Syed Zahid Ahmad

AGRICULTURE IS still the basic source of livelihood for more than 50 per cent Indian workers, who need to grow at a rate our service sector grows. Unless Sharad Pawar, the Union Agriculture Minister ensures that the farmers in rural India get due opportunities for growth through adequate financial and infrastructural services, we cannot be a super power.

He can solve the problems of farmers by developing required infrastructures like roads, dams and power plants for rural India through Islamic financial products.

The burden of debt based credits along with uncertainty about future market prices often compels the farmers to commit suicide. At present there is no system of interest free finances to the farmers and through future trading we can only predict future market prices, but cannot arrange genuine buyers for the agricultural produce.

Pawar needs to provide interest free finances to the farmers along with assuring stability in future prices of agricultural produce; and genuine buyers to buy the produces.

Bai Salam is an advance purchase mechanism in Islamic banking, where buyers sign an agreement with the farmers by making full payments in advance to buy specific quantity of agricultural produce with specified quality and price on future date.

Under this contract, since the farmers get interest free finance in advance from the buyer with assured sale at specified price on specific date, there is less tension for the farmers.

If India allows Bai Salam, besides domestic buyers, investors from Middle East countries may help us grow agricultural exports. If Bai Salam enables us to develop commercial aspects of Indian agriculture, there is no point to underrate the chances of investments in rural infrastructure by way of developing dams, irrigation plants, power plants and roads etc.

Once commercial buyers start signing agreements with domestic farmers, foreign investors would certainly like to make direct foreign investments in agricultural infrastructure to explore its commercial prospects.

Food scarcity is a universal challenge and it could be commercially exploited by Indian farmers if they get potential investors.

Like Bai Salam, there is a financial product called Istisna which suits the requirement of MSMEs. Istisna is a contract where the buyer pays in advance to the manufacturer with condition to deliver goods or develop structure by future date with specific quality, quantity and price.

Since Istisna has greater future structuring possibilities of trading and financing it could be well used to finance construction and manufacturing projects. It can support our MSMEs by providing interest free and equity finances along with assured buyers.

If Sharad Pawar and Dhinsha Patel work to arrange adequate financial products for Indian agriculture and MSMEs, definitely India will become a super power during the next five year plan period because agriculture and MSMEs collectively introduced provide livelihood to 2/3rd of Indian workers.

It is high time that such Islamic financial products are introduced to catch the huge investment potentials that are idle in Dubai and Middle East countries after global melt down.

If Islamic banking is allowed, we would see record growth rates for Indian agriculture and MSMEs, on condition that we apply the capital inflow in a planned manner

http://www.merinews.com/article/india-must-allow-islamic-banking-practices-for-growth/15795154.shtml

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