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Rediff.com  » Business » Need some cash? Try BQH Trust

Need some cash? Try BQH Trust

By Pradeep Gooptu in New Delhi
November 02, 2004 12:10 IST
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Imagine a large hall, easily 150 feet by 75 feet, filled with hundreds of men in white traditional garb and ladies in a similar attire tucked away in an alcove, listening intently to a bearded speaker on a dais.

A religious congregation? Not quite. This is a classroom for a lecture on how to run and grow your business without paying or earning interest on the capital employed.

And the speaker is not delivering a theoretical discourse - his lessons are backed by the country's only financial institution that supports businesses with capital, but without charging or paying any interest.

To be precise, it's not one institution but a network of registered charitable localised lending trusts spread all over the country and co-ordinated by Mumbai's Burhani Qardan Hasana Trust is involved.

BQHT has a paid-up corpus of Rs 35 crore (Rs 350 million) and its 40-plus sister organisations have a capital of tens of crore of rupees each. They are spread all over India, with the ones at trading centres like Saurashtra being the most vibrant.

"The entire capital is rolled over twice a year and non-performing assets are virtually nil," Abdulhusein Shipchandler, secretary of BQHT, told Business Standard after an exhausting classroom lecture one weekend in Kolkata recently.

The network has a spiritual foundation. This seeks to revive and spread the practice of doing business without paying, taking or calculating any interest.

The BQHT has the blessings of the spiritual and temporal leader of a bustling Bohra community, which has a sizeable presence in the markets in Kolkata and other Indian cities.

In Kolkata, the community is under the regional spiritual leader, who guides members to follow their spiritual precepts while conducting their business.

"A person who approaches for funds should be pure and free from ulterior motives," says Yunus Zainuddin, the regional spiritual head. No law can encourage an individual to repay money -repayment comes from a spiritual commitment.

Releasing an individual from the bond of interest income or payment blesses those who provide this escape, according to this spiritual line of thought. Individuals who extend credit without interest are blessed as well.

At the same time, each and every community member is urged to become an entrepreneur rather than seek employment. Members currently in employment are constantly urged to serve through their own business.

So how are the lending operations run? "Anyone can approach the institution with a business plan and ask for capital. The proposal is evaluated, the person's ability and inclination to repay is assessed and he is extended capital support", explains Shipchandler, who was a senior banker at a nationalised bank before he joined the trust.

In the case of a business, the balance sheet and the cash flow of the enterprise are assessed, says Mudar Patherya, who attended the recent lecture. Patherya is better known for his communications firm Trisys, which produces corporate reports and brochures.

Borrowers are required to submit a pledge, collateral papers, promissory notes or post dated cheques, but without any hint of interest being charged or paid in the arrangement.

The funding for the operations comes from different sources. If a person runs into difficulties with his repayment, there is a system of guarantors who help minimise the scope for default.

Widespread default caused by disasters could disrupt the entire support network. To minimise this risk, the lending trusts rely on well wishers and other means of support to make sure that the support system and process continues without a hiccup.

At times, the central trust of the community spiritual leadership contributes to the corpus so they no worthy candidate is turned away. Other charitable funds also chip in with contributions to the corpus.

Another unique arrangement allows individuals to place their idle money as interest-free short term deposits or 'amanat'. Generally, these are paid in multiples of Rs 5,000.

Community members also support the trust though a token donation of Rs 215. The central trust and the 'amanat' help the system tide over mismatches in the credit liability cycle.

To defray administrative and other expenses, the lending institutions have investments in properties that generate revenues through rents, like a huge hall in the heart of Kolkata's business district where the class was held. Its a well-known venue for marriages and other public gatherings.

The institutions are unique in the way they manage their administrative costs as well. They have managed to keep costs at below 2 per cent of the corpus administered. In the accounting period ended March 2004, this was 1.72 per cent.

Funding is provided not just to traders but to agriculturists as well, Shipchandler explains. A farmer in Gujarat will be provided funds for a borewell or a tractor as easily as a watch trader in Navsari, he adds. The difference is that support to agriculturists is mostly to buy equipment while funds extended to traders mostly help them to tide over working capital requirements.

This is no heartless institution -- thousands of small businesses, from watch retailers to consumer goods wholesalers in western India were granted a moratorium and extension on their repayment period after events like the 2001 earthquake or the 2002 communal disturbances in Gujarat or the failed monsoon of 2003.

A team of 18 full-time workers runs the computerised operations of the network. If there is demand for such a support system from any location, or if members report that there is a community that can be uplifted through a system of interest-free funding, a lending trust will be set up there, promises Shipchandler.
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