In Islam, earning (or paying) interest is considered haraam, and it makes sense, given the countless lives ruined by usurious moneylenders. But it would be only in ideal world that people can get loans without interest – it would also need people who put their savings in deposits without asking for interest. Ideal world? But that precisely is what is happening in Deoband town of Uttar Pradesh, home to the Deobandi Islamic movement, for more than half a century now. What’s more, it makes sense as a sound business model. This ethical business has also changed many lives in the process.

Take Hillal Mian for example. He needed money to expand his small shop where he offers services like photocopying and repairing of electric appliances. He made the usual rounds of the branches of 14 public sector banks in Deoband town, and learnt just how difficult it is to get a loan from cleared – not to mention the interest he would have to pay from the small income of his modest business. So, the Muslim Trust Fund was his obvious option. He got a loan of 60,000 in early 2013 without any hassle solely on the basis of the collateral – his few items of gold and silver jewellery. He has been repaying the loan on daily basis as required by the bank.

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“The main purpose of taking collateral in the form of ornaments is to ensure that a borrower feels responsible enough to repay the amount on time,” says Haseeb Siddiqui, general manager of the Trust who, at 76 years of age, is not yet looking at retirement after more than half a century of association with this institution.

Siddiqui explains how what seems impossible – running a bank-like institution without charging or paying interest – is made possible. “We run on a simple formula. If somebody wants a loan for rickshaw, the Trust gives them a rickshaw. We tell the borrower that instead of giving '30 per day as rent (to the rickshaw owner) it is better to give a small amount to this bank every day. In 200 days, he becomes the owner of the rickshaw,” Siddiqui says.
Thus, in Deoband all rickshaw pullers own their rickshaws, unlike other cities where they pull rickshaws that are usually owned by somebody else to whom they pay rent.

Ekram, who runs a rickshaw, confirms: “We can’t pay interest. And who will give me an interest-free loan, except this place?”

Ethical business model

Since 1961, when it was founded, the Trust has given loans to the tune to '86 crore to more than 1 lakh people, largely from the weaker sections of society who could not have afforded loans from the banks: small shopkeepers, tradesmen, rickshaw-pullers and others. Personal loans are also available for hospitalisation and weddings. The maximum amount for a loan is usually '50,000 but up to '2 lakh in rare cases.

Instalments are paid daily so that there is no great burden on the borrower. Of course, one has to have an account with the Trust to avail a loan.
“This is the last-mile connectivity we can provide,” says Siddiqui. When the big commercial banks are burdened with high non-performing assets (NPAs), the Trust doesn’t have any NPA. “If a borrower fails to repay, we return the collateral and ask him to sell it and pay the exact amount taken as loan.”
While the Trust does not earn interest on loans, it does charge a nominal transaction cost. “For example, '25 is taken as transaction cost on a loan of '1,000,” says Siddiqui.

Commercial banks pay interest on deposits, accrue funds from which they distribute loans at a slightly higher interest. The difference in the interest rates for deposits and loans is what the banks earn as profit. The Trust cuts out that profit part, while transaction fee is sufficient to cover the establishment expenses. So it makes sense that the Trust does not pay interest to its 76,000 account- and deposit-holders either.

Naseema, an account-holder for 30 years now, is proud of her association with the bank. “I understand the basic nature of banking here, so I have continued depositing money in here,” explains a burqa-clad Naseema who used to work in the Municipal Corporation of Deoband. As she deposited money, the cashier put the currency notes through an automatic counting machine: the Trust has gone for technology upgrade and computerisation.

Pioneers in Islamic finance

In India, Islamic banking is by and large still a concept more talked about than put into practice (the Kerala government, though, has made a beginning, receiving RBI nod in August to launch open an Islamic banking firm). The Muslim Fund Trust, on the other hand, has been running successfully for 52 years now. “We were pioneers in the field of Islamic finance,” says Nawaz Deobandi, a well-known Urdu poet who also worked with the Trust at one point of time.
During the 1960s, Deoband and its neighbouring parts in western Uttar Pradesh were in the clutch of usurious moneylenders who ruled the roost in the absence of formal banking activities. It was at this time that Maulana Syed Asad Madani, then president of Jamiat Ulama-i-Hind (one of India’s most influential Muslim organisations), thought of rescuing people from the moneylenders. He wanted to set up an institution that would cater to the needs of people on the ethical Sharia principles.

Haseeb Siddiqui, then in his early twenties and having just graduated from Darul Uloom in Deoband, was one of those who volunteered to make this dream a reality. Without any knowledge of commerce and accounting, Siddiqui took Madani’s mission as a challenge: “We started from a rented one-room place. We did not get salaries for four months but our aim was to save people from moneylenders’ nefarious practices.”

Creating awareness for banking activities was necessary, he says, since people used to keep their savings at home at the time. “We got them to deposit their saving with us. With that money we gave out credit to many needy people,” Siddiqui explains.

Today, the Trust has an annual turnover of '10 crore and a profit of Rs 3 crore after paying out salaries to its 45 employees. And in the process it has earned people’s trust.
“When many non-banking finance companies ran away with people’s money, it is the Trust which has been delivering to the needy,” says Nawaz Deobandi.
The Trust has enlarged its activities to the nearby areas of Deoband. More importantly, it has offered its services to Hindus, who comprise 35 percent of the population of this sub-division. “I am not much educated and find all the paperwork and procedures in other banks quite difficult. I find this bank easier to deal with,” says Narendra Kumar, a new customer at the bank.

Siddiqui make an important correction: “Don’t call it a bank, it is a Trust.”

(This story appeared in the January 1-15, 2014 issue of the print magazine)