16/12/2020
Research Report Extracted from :
ISLAMIC FINANCIAL INSTITUTIONS OF
INDIA PROGRESS, PROBLEMS
AND PROSPECTS
By: Mohammad Ghous Ikhtiyaruddin Bagsiraj
3.5 Islamic Welfare Society Bhatkal 1983-1999
Islamic welfare society of Bhatkal (IWSB) was established in 1983. It was promoted mainly by the
Jamat-e-Islami Hind group, and registered as a Charitable Society. Bhatkal is a taluka head quarter situated in
the West Coast district of Uttar Kannada in Karnartaka. Its total population is about 50000, 70% of who are
Navayath Muslims. Navayaths claim themselves to be the descendents of Arab traders, who use to frequent
Indian coast on trade missions30. Most of the Muslims are well to do businessmen; many of them are serving
in Gulf.
The main function of IWSB is to mobilise interest-free Deposits and extend loans without interest,
against the security of gold ornaments. The Society is also collecting Zakah and Sadqas and distributing the
same amongst deserving people. Donations are also being collected to meet the operational Costs of the
Society. Since inception in 1983 the Society has disbursed interest-free loans worth Rs. 199 million to 52087
persons till 1999 at an average of Rs. 3820.53.
3.5.1 Economic Performance
IWSB operates 3 distinct schemes for Deposit mobilisation. Rozana Bachat scheme or Daily Deposit
collection is the scheme for mobilising small savings on day-to-day basis. The depositors can withdraw their
savings only after one year. The Society has appointed 3 Bachat collectors who are paid a nominal salary and
2% commission. Initially Rozana Bachat scheme is said to have contributed larger share of the total Deposits.
However subsequently since 1992 Jari Bachat i.e. Current account has been contributing more to the total
Deposit mobilisation efforts, perhaps because the depositors can withdraw their savings any time. After 1992
generally Jari Bachat has accounted for over 60% and Rozana Bachat has contributed less than 40% of total
Deposits. There is also a third type of Deposit scheme called Muddati Sarmaya i.e. Fixed Deposits. However
fixed Deposits have remained fixed and negligible at 0.01% of the total Deposits. It is obvious that without
any returns or profit earning opportunities even Muslim depositors do not desire to commit their savings for
longer and fixed duration. Total Deposits of IWSB have registered impressive growth from Rs. 0.13 million
in 1983-84 to Rs. 23.01 million in 1998-99 (Table No. 3.12). However the peak Deposit mobilisation of Rs.
24.50 million was reached in 1996- 97, since when there is decline in total Deposits by Rs. 1.5 million till
1998-99. It means that without the other banking facilities like those of cheque-books and money transfer as
well as the opportunity to earn profit, there is a limit to the growth of interest-free Deposits even in a shariah
conscious Muslim society like Bhatkal.
Interest-free Loans:
The chief function of IWSB is to give interest-free loans. A maximum of only Rs. 5000/- is advanced
against the security of gold. The loan amount is about 70% of the value of gold. Most of the loans given are
for redemption of Bank loans, small business needs, personal needs such as medical expenses, acquisition
of visa, house repair, domestic consumption etc, rather than for investment in business. Loans are given for a
period of 6 months. But they can be repaid within 10 months. If loans are not repaid even after issuing two
notices, Society reserves the right to auction jewelry to recover its dues. Generally all loans are recovered
before auction date. No jewelry has been auctioned so far. Only about 20% of loans are outstanding for more
than one year. Ultimately all loans are recovered and according to the Management there are no bad debts.
The Society has also lent secured loans of Rs. 2.0 lakh to a religious college, Rs. 2.0 lakh to High School and
Rs. 1.0 lakh to a social organisation. Some personal loans to its staff have also been sanctioned. The
Operational Cost of loans was initially met by the society mainly through donations and stationary charges
ranging from Rs. 3 to Rs. 8 per loan form. Subsequently since 1987-88 Service Charges of Rs. 50 are also
being imposed on loans above Rs. 1000. This rate has been increased to Rs. 75 since 1996. For loans of Rs.
1000 or less no service Charges were imposed till 1996, subsequently Rs. 5 is being collected. However
Service Charge collections have formed 20% to 50% of total Cost at the most. Hence IWSB has been raising
donations to meet bulk of Operational Cost. In the early years Operational Cost was less than the donations
received, for later years donations have generally formed 40% to 50% of the total Operational Cost (Table No
3.13). IWSB has been also endeavoring to earn some income by renting out chairs and tables for marriages
and other functions to meet its Costs. However the Income earned annually is only around Rs. 10000 or less.
As a result for some years. Operational Costs are more than total Income. The deficit in Income is generally
met from temporary loans. IWSB has not been able to maintain substantial reserves. At the end of 1998 it had
only Rs. 5729.24 in General Fund and Rs. 2.88 lakh in Building Fund. The total Fixed Assets of IWSB were
valued at Rs. 11.60 lakh at the end of Dec. 1998. It consisted of a plot of land and building worth Rs. 5.34
lakh, that was received by way of donation and Islamic Complex under construction valued at Rs. 3.18 lakh.
Rest of the Fixed assets are office furniture and fittings.
Total interest-free loans advanced by IWSB have registered impressive increase from just Rs. 1.28 lakh
in 1983-84 to over Rs. 200.00 lakh in 1998-99. In a town of only about 30 thousand Muslims this is an
impressive performance indeed. However if we read in between the figures it will be clear that after 1991-92
there is lop-sided growth in loans disbursed, coupled with some decline in Deposits. Meaning thereby that
saturation is being reached in deposit mobilisation as well as loan disbursements. This may be because our
society and economy needs interest-free means of earning rightful income more than the facility of interestfree
loans. IWSB and similar societies will have to diversify in to Islamic Investments on profit and loss
sharing basis and provide income-earning opportunities to their depositors if they desire to attract substantial
Deposits, and serve Islamic finance as well as their own growth.
3.5.2 Social Performance
IWSB has created a good social impact. It has provided on alternative and cheap source of small finance
to people. Loans are sanctioned within one hour to one day at the most. The doors of IWSB are open to all
irrespective of caste and creed. Though non-Muslims form less than 5% of the deposit holders, about 10% of
them are borroweRs. 70% of the deposit holders of Rozana Bachat Scheme are Muslim women. However
women form only 30% of Jari Bachat Scheme. 70% of Muslim men hold the Jari Bachat Scheme. Amongst
borrowers, women form 60%, where as only 40% of the borrowers are men. This is in keeping with the
larger share of women in most of the other IFSs distributing interest-free loans.
3.5.3 Managerial Performance
An Executive Committee consisting of 5 officials and 6 members manages IWSB. The General Body
consists of Founder Members and ordinary membeRs. Founder Members are also life membeRs. Every
member has to pay monthly membership fees of Rs. 5. There are only 32 members of the General Body so
far. The office bearers of the IWSB consisting of President, Vice-President, Secretary, Assistant Secretary,
Treasurer, and two members of the Executive Committee, in all 7 members are elected from amongst the
Founder Members and 4 more members of Executive Committee are elected from amongst ordinary members
of the General Body.
Janab Ruknuddin Mohammed Jaffery was the first President. Janab Shoukat Mohsin Mohtesham was the
founder Secretary. Mr. Sayyed Husain Barmavar and Mr. Shamsuddin Akrami founder members, were the
chief promoters of IWSB. The objectives of IWSB are31:
1. To inculcate thrift habit among the citizens.
2. To mobilise savings of the citizens.
3. To work for social, moral and economic up-liftment of the citizen.
4. To save the citizens from the curse of interest by accepting and advancing interest-free loans and
to assist the poor and needy to acquire their livelihood by interest-free advances.
5. To assist the economically weaker section by providing financial assistance for their vocational
education and training.
6. To work for mobilisation and redistribution of charities like Zakah, Sadqah, Khairat, Fitra etc.
7. To establish a permanent relief fund for the victims of natural and social calamities etc.
8. To make donations to the institutions engaged in carrying out objectives similar to the objectives
of this society.
Not all, but main objectives of the society are being attained satisfactorily according to the Management.
The Management is considering expansion and diversification of the activities of Society, but so far they
have not been able to prepare a new blue print. Changing financial laws of the land and increasing
restrictions on the functioning of NBFCs are considered to be big hurdles. More over inspite of efforts to
have own building IWSB is still being run in a rented building. IWSB has not approached Finance Ministry
or RBI for finding solutions to the problems of establishing and managing IFIs. Nor have they any plans to
establish technical, financial or training links with IFIs functioning abroad. However IWSB is an active
member of the Federation of Interest Free Organisations (FIFO). The Management is satisfied with the cooperation
being received from Muslim masses, Ulemas, Non-Muslims and govt. officials. The activities of
IWSB are not advertised.
The Secretary is paid an honorarium of Rs. 5000, he also acts as Manager of the office. Cashier is paid
a monthly sum of Rs. 3000. Accountant gets Rs. 2500, Assistant Accountant cm Clerks five in all get Rs.
2000 and each of the 2 Attenders are paid Rs. 1200 monthly. Besides these 10 office employees there are 3
Rozana Bachat collectors who are paid Rs. 1500 monthly plus 2% commission on Deposits collected by
them. There are only two graduates on the staff.. No training facility is provided for the staff.
Like MFD and MFN, IWSB has also brought out a Souvenir in English and Urdu called Breaking
Chains32. It contains many articles on interest, its harmful effects, the importance of establishing interest-free
Society etc. but the 175 page Souvenir contains only three pages on IWSB that too about its objectives aims
and aspirations. Nothing except the Society’s 1982-86 Income and Expenditure Account is written about the
performance of IWSB.
3.5.4 Problems and Prospects
The problems as well as potential of IWSB are not much different from similar Societies operating in
India. Foremost problem of IWSB is how to meet the Operational Costs including the Cost of insuring stock
of gold ornaments received as security against loans, which was as high as Rs. 0.5 lakh in 1998. Recently
with fluctuations in gold prices, Gold Loans themselves have become risky due to periodic fall in gold prices.
In their eagerness to provide cheaper interest-free loans the Management is recovering only about 40% of the
Cost from borroweRs. Verification of women loan seekers is much more difficult, hence their loans are also
risky. Non availability of staff, their frequent changes due to inability of Management to pay higher salaries,
their training etc. are another set of problems. Inability of Management to diversify their activities to PLS
Investments and profit earning operations has become perennial problem. The limit on Deposit acceptance of
NBFCs imposed by RBI’s Prudential Norms is a sward hanging on the heads of all the IFSs.
Inspite of above problems IWSB is being managed efficiently and successfully. It has won the
confidence of the people of Bhatkal because of the dedication and sincerity of Management The biggest
achievement of the Management is its ability to keep the operational Costs to generally less than 4% of the
total advances, which majority of the other IFIs of India have failed to achieve. Thus as and when IWSB
diversifies its activities to profit earning operations, it is most likely to taste success. However the immediate
attention of IWSB is engaged in diversification to income earning operations such as acquisition of assets
including land and building or construction of a Commercial Complex to house its own office and earn rental
income.
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30. Bahaudin (1982)
31. See Breaking Chains, Souvenir, Islamic Welfare Society Bhatkal 1986, pp. 17.
32. See Breaking Chains, Souvenir, Islamic Welfare Society Bhatkal 1986 pp. 1-170.
