Of Islamic VC Funds and Christian Chambers of Commerce
Hidden among the news of last few days was an innocuous and brief report which I am certain most of you missed.
It talked about an “Excellence Award†for 2012 that was bestowed upon Dr Augustine F Pinto (Chairman) and Grace Pinto (MD) of the Ryan Group of Institutions by the Governor of Rajasthan, Margaret Alva (thanks to Sh Krishen Kak for alerting me).
What was interesting was not the award but the body that was honouring Dr Pinto and Grace Pinto. This organisation was the Christian Chamber of Commerce and Industry.
Now, up until I was alerted to this news-item, I had never heard of the “Christian Chamber of Commerce and Industry†(nor the “Excellence Awardâ€). But it did remind me of something else I had read more than a year back. Something which I had filed in the hope to dig further when I have more time.
That something was a conference that was held in May 2011 in New Delhi on “Prospects for Islamic Venture Capital Funds in Indiaâ€
As with the “Christian Chamber of Commerce and Industryâ€, I had never heard of “Islamic Venture Capital Funds†– either in India or elsewhere.
The news-report on the conference was largely innocuous but a few lines towards the end were revealing. They included (emphasis added):
“The fast and unhindered growth of economic disparities, regular occurrence of banking and financial crises, and stock market crashes, the world over, testify to the fact that the interest-based paradigm of banking and finance has grossly failed to ensure sustainable and inclusive economic growth.â€
The article made all the right noises about “â€justly inclusive economic growthâ€, about how the “right of doing business fairly and fearlessly†was a “humanist goal†and “social justiceâ€. Words and phrases like “inclusiveâ€, “humanist†and “social justice†always make me sit up and take notice. They also make me a little nervous.
For most of the time, these are but a cloak for something else – usually some kind of redistribution, or other socialism-inspired ideas. Sometimes there is not even pretence of a cloak. But I digress.
Implicit in both these news-stories was the belief or the assumption that Muslims and Christians in India (which is neither Islamic nor Christian; nor Hindu, for that matter) may need some “special†treatment since they perhaps suffer discrimination living in a non-Islamic or non-Christian country – or get sidelined in some other manner.
The first question that came to my mind when I read about the Christian Chamber of Commerce (as well as the Islamic Venture Finance Conference) was this, “What is Christian about a Chamber of Commerce? And what exactly is Islamic about an “Islamic Venture Capital Fund�
I wondered whether an Islamic Venture Capital Fund will only invest in companies founded by Muslims. If yes, how about companies founded by Muslims where the majority stake is actually owned by non-Muslims?
Would such an explicit criteria of “selection†fall foul of anti-discrimination laws? Or are such laws only applicable when a majority faith institution or a “secular†institution begins to discriminate among applicants?
And if the Islamic Venture Capital Fund(s) would not discriminate among Muslims and non-Muslims, would they insist on the company adhering to the principles of “Islamic Finance†(whatever they may be)? And if none of this is true, then what exactly is the point of an Islamic Venture Capital Fund?
What about the Christian Chamber of Commerce? Would it welcome non-Christians? Would it charge more fees from them? Would it favour Christians over others? Â Or none of these?
But the most important question – which also makes me most uncomfortable – is this, “Have things now come to such a pass that each identity-based group and each “minority†in India feels compelled to organise their own narrow lobbying groups to protect their “interests†and their identities?
Where does this stop? And what does this mean for the “Idea of India�
Questions, questions and more questions…but few answers.
Jai Hind, Jai Bharat!
P.S. In his acknowledgement speech after receiving the award, Dr Pinto “acknowledged God’s constant guidance in building one of India largest chains of privately owned schoolsâ€. Which made me wonder how much of the “success†of such minority-institutions (in particular, Catholic-faith based schools and educational groups) is due to the relative “freedom†they enjoy from government interference and controls (e.g. minority-institutions are exempt from the recent RTE legislation), as well as the generous funding they receive from abroad? More questions. Sigh.
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Right on target, Shantanu!This issue needs to be raised on a wider level.
Also, another recent news that Reserve Bank of India (RBI) is considering to tweak the law to allow Islamic Banking creates an equal concern:
http://timesofindia.indiatimes.com/business/india-business/Tweak-laws-to-allow-Islamic-banking-RBI/articleshow/16663710.cms
Shantanu,
Sharia banking is a big sector globally – most of the global private banks have dedicated funds for sharia investments, where the money mainly comes from the middle-east, and is invested in companies globally, even including the Great Satan!
Similarly, there is something called Ethical investing or christian investing groups in the US and Nordic Countries.
They just follow a different set of investment principles compared to the “normal” set of investors, who just seek a profit.
In addition to seeking a profit, Ethical/christian investing groups will not invest in anything to do with arms and armaments, gambling, alcohol, and birth control.
Sharia banking/investing will not invest in gambling, alcohol, entertainment businesses, and non-halal food manufacturing. In addition, lending for interest is prohibited – so even loans are structured as investments with fixed payouts, if the investments work out, and zero payouts if the investment fails. There is no specific requirement to invest only in businesses started by Muslims, but they get higher priority.
I am sure you are aware of these segments having been in investing yourself.
A liberal would not oppose such specific investing by any group – the Jains and Marwaris do this all the time, seeding their specific community businesses in preference to all others, and they too do not invest in alcohol, gambling and any meat/fish related businesses.
A liberal would, however, certainly oppose any policies that either unduly favoured or hindered these groups vis-a-vis other investment groups.
Cheers
Hi Shantanu,
My 2 cents.
Islamic/sharia finance is non-debt finance, more or less.
Usury (lending out money for interest)is banned in the christian bible as well as the quran, but the muslims have stuck to the tradition with a little bit more of strictness.
The reason that usury was banned was because the lender generally had no downside in a world that did not have the concept of bankruptcy. The debtors could not escape their debt. If they died, their family would inherit their debt. Also, it would continuously compound.
Mohammed, who was a trader, banned this practice for practitioners of his religion and forced every financier to buy essentially a share in whatever venture the debtor sought to pursue. If the debtor sought to use it to buy a capital good, then the vendor kept the ownership and the debtor promised to buy it back later at a higher price. (Hire-Purchase would be the modern term for this). Default in either case would not lead to continuous immiseration, or that was the theory.
Hence, my guess of what an Islamic finance venture capital fund does is create instruments that enable financing without resorting to loans. These are generally equity share, gain share, hire purchase, etc.
Allowing Islamic finance is allowing institutions to be created with a limited mandate of financing to satisfy a religious need. The reason this should be allowed is that it will allow the investment of a fairly large chunk of arabian and malaysian wealth in India in institutions that they perceive to be Sharia compliant.
Zizya vis a vis usury.
I would answer the point raised by Patriot.
His point is:
“A liberal would not oppose such specific investing by any group – the Jains and Marwaris do this all the time, seeding their specific community businesses in preference to all others, and they too do not invest in alcohol, gambling and any meat/fish related businesses.”
I would say to this:
The State (Govt) does not oppose or encourage Jains and Marwaris in this practice. Similarly, India as a State does not have to get involved in the ISlamic and Christian VC Funding or Islamic Banking. Let the private players (citizens) do this, if they like.
Is it not surprising as regards Christian Chamber of Commerce that is one more to add to the proliferation of organisations which only Hindus have been capable. There are two such national bodies for industry with the Confederation of Indian Industries(CII)and then Federation of Indian Chambers Commerce and Industry(FICCI). I grant that commerce and industry can justify two different organisations but for FICCI to encroach on the industry component of CII has no justification in reason. In the last election at the centre, one group rooted for UPA and the other the NDA. There was business reasons for them to have fallen on different divides except that they are run as fifedoms. In the UK, there are three representative bodies for Hindus: Hindu Forum of Great Britain, Hindu Council, and the Confederation of Indian Organisations. Thid simply reflects the inability for Hindus to have a champion for them. It would not therefore surprise that it has also infected India’s Christians and Muslims. This should be a wake up call for Hindus to put their house in order. Sharia does not permit investment in firms which contradict sharia. Islamic investors would be circumspect before investing in firms and would only do so if compliant. If the issue came up for dispute in the courts, the legal authority has it that it would be judged according to the law of the jurisdiction for its resolution which I imagine would be India. I am not aware that India has appointed Sharia judges, so the issue of expertise of rendering judgement according to Sharia arises. Despite its grand sounding ambitions there are a good many hurdles for the Islamic Venture Fund to operate outside of the circle of Muslim investors. They would follow their tradition rather than Indian law.
“The first question that came to my mind when I read about the Christian Chamber of Commerce (as well as the Islamic Venture Finance Conference) was this, “What is Christian about a Chamber of Commerce? And what exactly is Islamic about an “Islamic Venture Capital Fundâ€?”
“But the most important question – which also makes me most uncomfortable – is this, “Have things now come to such a pass that each identity-based group and each “minority†in India feels compelled to organise their own narrow lobbying groups to protect their “interests†and their identities?
Where does this stop? And what does this mean for the “Idea of India�
Questions, questions and more questions…but few answers.”
There is another point raised in the comments above about Jains and Marwaris for some discrimination in business ventures. Well, it is partly too because things have changed with modernity and Western style of education and life style. I think both these groups have become fairly competent in it with all others. Who can escape the impact of wine and women, the two most intoxicating beverages and consumables. The entire kingdoms have been consumed into them.
As regards the above clips posted here, India is not meant to be “a nation” but “the nation” after abolishing 565 states to create one state on the “Westminster Model” (it is not my statement but of the founder fathers). Hence despite the President, we also have one family dynasty i.e. Nehru-Gandhi”. Look at the current Vadra controversy where the entire Congress family shamefully have come to the rescue of this corrupt royal son in law. Vadra is a private individual for Chidambaram when comes to probe him but he becomes defensible to Salman Khursid even by laying his life for Sonia; Salman feels the other way to defend Vadra. This is a most mindless and heinous strategy of the current ruling class in your or my India.
Hi Shantanu,
Do you see the ‘narrow divisive walls’ creeping into business lobbies and investments?
Hindu College has been a long standing institution in Delhi; so is St. Stephens. Are we now ‘forward integrating’ the ethnic and religious identities to business? Wasn’t it inevitable once we accepted that these identities are OK for educational institutes?
Why do we treat education and commerce/investments separately? Isn’t one the input for the other?
But then, the wheels of commerce, money & wealth have no colour, do they?
…
Munish, I entirely agree with you.
And, there are awards and awards and then they are awards – I would not consider them to be encouragements – any private company, worth its salt, would be able to show you some award or the other.
RE: the Jain and Marwari community – the point was not so much about discrimination (I don’t view it as such), but comfort levels. A marwari feels more comfortable dealing with another marwari or investing in a business, run by another marwari – because some of the ground rules are already set and interactions are easier and trust is quicker to foster.
A marwari businessman once told me that the whole clan of marwaris originate from one region in Rajasthan – to koi marwari mere se chori karega, to woh bhagke kaahan jaayega? Social ostracism as a threat is a real trust creator in this community!
Cheers
Can anyone run a business without security? Safety in investment is paramount unless you can be Royal son in law. In that case the entire official machinary becomes your savior.
Munish,
Privately, people have been doing some variant of Islamic finance. The idea here is that by allowing Sharia-compliant institutions by defining their scope in law, you can provide surety to strangers and after that to foreigners. That requires interface with the state. There is no way of doing this on a large scale without the state interfering. It is unfortunate that the RBI will be trying to resolve Sharia matters, but that is unfortunate because there is no way of doing anything big in India without alerting the state.
Whether a sharia compliant fund can be setup in India under the present Non Banking Finance Companies Act, I don’t know. What I’m sure is that if any of these firms had been setup and grown, the authorities would have cracked down on it.
*** NOTE by MODERATOR ***
Dear Dr Sudrania: Pl keep your comments short and to the point/ Pl read the comments policy here
***
Forget about Malaysians investing in Islamic Banking of India. Malaysia is trying to be the hub of Ismlamic Banking of the world. Malaysians are spoiled for choice on sharia compliant invesements. Arabian wealth will go only to Malaysia. As for Jains and Marwaris preferring their communtiy business, ‘birds of the same group feather together’. This has nothing to do with religion. All groups have this characteristics.
Dear Moderator,
Thanks for caution but my comment was only a reply to other comment which deviated from the point. Hence it should have been directed to the cause. No malice but a balance is required. Thanks once again.
Somewhat related link: https://www.box.com/s/l6ecdopxl612sbmdsc3e
Economic Modernization in Late British India:
Hindu-Muslim Differences
by
Timur Kuran* and Anantdeep Singh**
December 2010
Abstract. The Muslims of South Asia made the transition to modern economic life more slowly than the region’s Hindus. In the first half of the twentieth century, they were relatively less likely to use large-scale and long-living economic organizations, and less
likely to serve on corporate boards. Providing evidence, this paper also explores the institutional roots of the difference in communal trajectories. Whereas Hindu inheritance practices favored capital accumulation within families and the preservation of family fortunes across generations, the Islamic inheritance system, which the British helped to enforce, tended to fragment family wealth. The family trusts (waqfs) that Muslims used to preserve assets across generations hindered capital pooling among families; they were also ill-suited to profit-seeking business. Whereas Hindus generally pooled capital within durable joint family enterprises, Muslims tended to use ephemeral Islamic partnerships.
Hindu family businesses facilitated the transition to modern corporate life by imparting skills useful in large and durable organizations.