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interest free cooperative society
The sanghamam multi state cooperative society,the first co-operative society working on interest free principle will launch its operations in Kozhikode malappuram and alwaye.
The managing director of the society k. shamsudheen said the credit society will not take or pay interest on loans and deposits but would work on principles of profit and loss sharing in its transactions among share holders.The society will operate in states of kerala tamilnadu and pudussery.
Though the society works on interest free basis,we would not take the label of Islamic finance or Islamic banking as the society is registered under a general act the society would focus on providing loans to self employment and small scale ventures and would have people from all social and religious segments as members.
As per RBI study there are around of 5000 crores deposits lying in various banks with no interest claimed on them by depositors who are members of muslim community which do not receive interest due to reasons of faith.We hope to attract a share of such deposits and would aim to put it to productive use he added.

Understanding the difference ("iron sheep") 02.May.2014 05:48

Mike Novack

Although often called "Muslim banking" (or even "Jewish banking") this form of "interest free" loans is designed to remove the absolute nature of interest in which the lender assumes no risk. My reference to "iron sheep" is because ancient Jewish law was ruling not only against interest as we would know it but also treating share cropping contracts in which the lender's share was guaranteed in the same way <<his share of the sheep were "iron sheep" >>

KEEP IN MIND -- the net result of this form of lending is NOT that the average borrower pays any less because the profit sharing (and since partnership, loss sharing) provisions would be adjusted accordingly. But the risk to an individual borrower whose operation did not succeed would be much reduced.

In other words, the difference is NOT that capital is made available without having to be "paid for" (that doesn't change) but the moral status of the lender is different, and the lender is sharing any losses as well as any profits, and so cannot "profit" from any particular borrower who ends up in difficulties. In practice the poor end up "paying" the same average amount for the "loans". In surrendering a percentage of the profits, they end up paying more when the deal worked out particularly well (but in that case they can better afford to) and less or nothing when the deal worked out badly (and they can least afford it).