Business to the Buddha

Tag: Islamic Banks

  • For Profit Businesses







    Businesses are made for profit making, is there a question in this assumption or argument? For the time being, I am assuming there is no doubt about the argument that business exist for making profit.

    I have been thinking about the topic of “measuring growth” I wrote recently. People may say there are businesses as “Not for Profit Businesses”. This concept of “Not for Profit” in many cases is about reinvesting profit in business rather than giving dividends to the shareholders/investors.

    There are other businesses which are “social enterprise”, I wrote on such businesses with reference to a book “I have a dream”. These are businesses which exist for making profit; however their primary reason of existence is social upliftment with moderate profits. I wanted to ask myself – why not all For Profit Business be like that?

    In my previous career engagement, a couple of times I had a chance to meet CMO of a big Mutual Fund house. In one interaction he told my boss – “you do X, Y and Z; Calculate your cost; add your 20% profit on that and charge me. I need this X, Y and Z done.” This statement was very liberal to hear. I had seen many organizations trying to squeeze their service provider. Thus the statement became a guide for me to think about such clarity and about fair co-existence. I relate the same to the previous post of “measuring growth”. When I tried understanding Islamic banking and asking the feasibility of the system, I saw contrary view points. I read somewhere Islamic banking does not call “interest” (on debt) as interest whereas terms it as profit sharing (say 20%). So there may be businesses so clear and there could be predictability in cost, profit and growth of business and economics.

    This kind of approach is very simple. However, the above case is very simplistic and everything (many things) would become very predictable – how would finance experts – involved in complex transactions and certificates  – would be able to manipulate market? There can still be demand and supply gap and market may run into a relatively predictable and stable equilibrium.

  • Measuring growth







    I had been asking myself a very naive question. How do we measure growth? Well the answers is not “the GDP” etc. What if I sell things very expensive? GDP might grow, right? So, I zeroed down to interest rate as one vehicle to measure growth.

    Well, let me be more fairer in providing one more reason for taking debt as a metric. I had been wondering about 2008 crisis and the fancy word – Corporate Debt Restructuring. When we look at these and other special purpose instruments we would realize that humans try to fool themselves or fool others. Therefore I considered  Debt as one metric to measure growth. I noticed Kingfisher drowning  recently – I mean the airline in India. We all have witnessed crisis of 2008. In the enthusiasm and to show fat books banks start providing loans to people; once a person is not able to repay the debt banks auction those properties. These two big cases and the housing bubble, all these things are examples of our assumption based “Growth” of economy. Here we assumed growth is represented by the ability of people/organizations to take loan. Interest rate of loans would become a representative of metric of growth.

    We all are in this mess of economic slowdown because of the concept of debt. The ability of big, smart and mighty people and organizations to restructure these debts. When I was doing a course on Independent Directors with Institute of Directors I was wondering in one session – “What if  we don’t have this concept of Debt?” In Islamic banking there is no concept of debt. We may say that Islamic banking has a more refined concept (debt), it is called as profit sharing.

    I am not a scholar of Islamic Banking and therefore whatever I am writing here is with reference to what I was told by one of my colleague and friend (Abdullah Pijvi). He too suggested to me that he is speaking from his experience (he had taken some loan) and therefore he knows that there is no straightforward concept of Debt/loan. It was interesting to know that concept however I had a question in my mind – if Islamic banks don’t have the concept of debt how do they grow? And I started defining metric of growth as – debt and interest rate!

    Related blogs – Where is growth?, What else you need? and Abundance of scarcity

    Disclaimer – 1. In this blog technicalities of economics were not considered very seriously. So readers are warned to do their research in formulating their arguments for/against such thoughts. 2. More thoughts on Islamic banking in future blogs