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Book Review: Participatory Financing through
Investment Banks and Commercial Banks Reviewed by Anita Ahmad Participatory Financing through Investment Banks and Commercial Banks is the second of a series of three books written by Gafoor, which taken together is said to provide a comprehensive banking system that addresses the concerns and needs of Muslims today. The other titles are Interest-free Commercial Banking and Commercial Banking in the Presence of Inflation. In Interest-free Commercial Banking, Gafoor explained how it is viable for a banking system to be interest-free - inadvertently showing that it is possible for a Muslim's savings deposit to be unfettered by interest. In Participatory Financing, Gafoor approaches interest-free banking from an investment perspective, explaining how a Muslim can earn a halal income by using his or her savings. Gafoor does this by focusing on investments in projects/businesses or in the stock market. After generally discussing the options a potential Muslim investor has, Gafoor introduces a mechanism for investing funds from the investment accounts, managing their accounts, managing their investments, and sharing the profits and losses therefrom. He says this mechanism, which he terms 'participatory financing', will be applicable to all projects. In a 'participatory financing' scheme, there are three partners: the investor, the bank and the entrepreneur, all of whom would have an equal share of any profits derived from the investments made out of the investment accounts. Gafoor explains how this can be done by providing different scenarios, examples and tables, while delving into how this would work with multiple parties and the kind of contracts needed to implement the same. Gafoor also goes on to explain how participatory financing can be provided through investment banks and through commercial banks on account of their different characteristics. He does this by looking at the relationship between large investors and investment banks, and the relationship between small investors and commercial banks. Gafoor then discusses the benefits that may be derived from a participatory financing scheme as well as the concerns that may arise in its implementation. First and foremost, the scheme promises to provide Muslims with a halal way of earning an income using one's capital without having to take an active part in an enterprise. The scheme also, amongst others, provides an avenue for the entrepreneur to access required capital without having to deal in riba. The concerns raised by Gafoor include the unacceptability of such a scheme to banking authorities of any one country. Another issue is the risk that investment banks using this scheme may limit their operations to large projects in large cities, leaving outlying cities, smaller communities and smaller projects entirely to commercial banks. In the last chapter of his book, Gafoor provides an explanation on the direct and indirect effect inflation may have on a participatory financing scheme. The direct effect of inflation that Gafoor discusses is mainly on the profit or loss share of the partners in the participatory financing scheme. The indirect effects discussed, on the other hand, touches on how an investor's capital may erode depending on whether he or she places his or her money into a deposit or investment account. The book, although dealing with the technical aspects of Islamic banking, is easy to read and understand. It can also be read on its own as long as the reader already has a basic idea of what an interest-free banking system entails. A review of Gafoor's third book from the same series, Commercial Banking in the Presence of Inflation, will appear in IslamiQ.com next month. Born in 1946, A.L.M. Abdul Gafoor, graduated in Physics and Mathematics from the University of Ceylon, Colombo, and continued his studies at the International Centre for Theoretical Physics, Trieste, Italy and at the International Centre for Pure and Applied Mathematics, Nice, France. He has taught at the universities of Colombo and Groningen, and has been the Head of Statistics and Computing at Marga Institute, Colombo -- a Social Sciences research center. Currently, Gafoor devotes his time to developing a general banking and financial system that is transparent, responsible and inflation-sensitive, with special reference to the needs and concerns of Muslims today. He lives in Groningen, the Netherlands. Title: Participatory Financing
through Investment Banks and Commercial Banks Published on:22 May
2001, www.islamiq.com |