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Published in the 16-30 Sep 2004 print edition of MG; send me the print edition

If "interest" is haram

What is the alternative?

Our community is never tired of proclaiming that interest is haram without offering a practical alternative. With Muslim-managed financial companies and banks collapsing like a pack of cards, it is time to establish micro-credit institutions says M H Lakdawala 

  • Mubashira, 28, a housewife visits the jeweller at Bandra to take a loan of Rs 25,000 against her ornaments agreeing to pay 10 per cent interest per month. 

  • Sana, 48,wife of a failed businessman visits the jeweller at Agripada for a loan of Rs 3,00,000, not thinking twice, at the rate of 4 per cent interest per month. 

  • Zaitunbi, 32, a slum-dweller regularly visits a jeweller at Bhendi Bazar to pay monthly interest of Rs 500. She has taken a loan of Rs 15,000 for her husband’s medical treatment. 

A unique characteristic of Bandra, Agripada, and Bhendi Bazar, all pre-dominantly Muslim areas are, the networks of jewellers who are more interested in giving loans rather than selling gold ornaments. These jewellers cater to all classes of the Muslim community- slum dwellers, middle and the elite classes. Their monthly rate of interest is anywhere between 4 to 10 per cent every month with compound interest rate. 

The community is never tired of proclaiming that interest is haram without coming up with a real alternative to cater to such needs. It is exactly such type of exploitative interest, which is the riba forbidden in Islam, but the community is oblivious of these exploiters who many a time take the help of anti-social elements to recover their dues with full interest.

One of the remedies for such type of exploitative loan providers is making micro-credit available to the poor. The term ‘micro’ is, used to denote the small size of loans vis-à-vis those of the mainstream credit market. The clientele consists of people unable or having difficulty in accessing mainstream credit. 
According to a case study of Mahila Milan Bank, the poor borrow in times of desperate need from Pathans/money-lenders, pawnbrokers at an interest rate of upto 10 percent per month. But on joining saving groups of Mahila Milan Bank, they have been completely freed from the clutches of such sharks. 
The fact is that micro-credit services have existed from time immemorial through chit funds, pawnbrokers and the ubiquitous money-lender (collectively known as the informal credit market). The money-lender, made infamous by the media, however, had and continues to have, a large number of good reasons to survive. It is true that in the last four decades the proportion of informal credit has halved, but the moneylender continues to hold the majority of the market within this sector. 

The professional micro-finance service providers in India include banks, financial institutions, non-government organizations and non-banking finance companies. They all entered the market with similar objectives: to counter the exploitative arrangements that exist in micro-credit and to make credit more accessible to the poor. 

Unfortunately the Indian Muslim community, which has the unique institution of Zakat, has failed to establish micro-credit institutions. Even the concept of interest-free banking has failed to take off and recently acquired the bad reputation with the collapse of the likes of Baitun Nasr and Al-Falah. Even the other interest free non-banking institutions managed by the community have nothing substantial to show as an achievement. Indian Muslims must learn from the experiments of Grameen Bank in Bangladesh, Aman and Ikhatiyar in Malaysia; and MYRADA in India.

In India, Mumbai has the largest number of slum dwellers (5.82 m) followed by Delhi (1.82 m), Kolkata (1.49 m) and Chennai (1.08 m). In terms of proportion, Muslim slum dwellers to total slum population, Mumbai again ranked first with 28.5 per cent Muslim slum dwellers distantly followed by Delhi (18.8 per cent), Chennai (18.3 per cent ) and Kolkata (12.7 per cent). 
For these Muslim slum dwellers, there are very few alternatives available in an emergency. Hence they turn to Pathans/money lenders, pawnbrokers at exorbitant rates.

The micro credit schemes work on the basis of seeking no collaterals, no external guarantors, directly delivering the finances to the clients’ doorstep, provision for repaying of loans simultaneous with saving facilities, and small loans for income generation activities. The micro credit operates by organising the borrowers in small groups, repayment of loans on weekly basis and on interest-charging basis. 

Aziza, 41, a widow, is today a self-sustaining woman after she acquired a loan from one of the social organisations. She invested Rs 20,000 in starting a Tiffin service. She is now earning enough to take care of her three kids and herself. 
Halima, 36,was literally on the streets after her divorce as her parents themselves were living in the slums and had no permanent source of income. She was helped by the Mahila Milan to start a vegetable stall. Today she is not only taking care of her children, but supporting her parents too. 

Konkan Cooperative Credit society in Mumbai is disbursing micro credit to poor Muslim women. They are very successful in this sector. Mahila Milan is also very successful in empowering women this way.

The Muslim community needs many such organisations working at the grassroots, empowering women all over the country. We have thousands of destitute women who have nowhere to go for financial assistance. Training them and providing them micro-credit will go a long way in alleviating their suffering.

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