For the first time, Indians seeking vehicle financing have the option to do so in consonance with Shariah. The ecarworld.in peer-to-peer (P2P) platform offered by Bengaluru-based fintech start-up ECW Consultants uses the ijara rent-to-own model.
“Since our business model is Shariah-compliant, it works well for those who want to stay away from interest-based financing. Such people do not have many such options in India. Most of the existing companies are currently using the P2P model purely for interest-based lending,” Arshad Mirza, ECW Consultants chief technology officer, told Salaam Gateway.
Ecarworld.in launched in July 2017 in a market of around 50 P2P platforms that include Faircent, I-Lend, India Money Mart, Rupaiya Exchange and LenDenClub. ECW has been certified Shariah-compliant by TASIS, a Mumbai-based Shariah advisory, auditing and screening firm that has provided similar services for a number of financial companies and their products, including Tata Mutual Fund, Bajaj Allianz and General Insurance Corporation of India. Shariah compliance does not mean ECW will target only Muslims.
“Our offering is just as suitable for the rest of the population in India. The model gives much better returns than bank fixed deposits, with lower risk and unpredictability compared to equity investments,” said Iftekhar Rahi, the company’s head of sales and marketing.
ECW claims the platform has facilitated financing for 20 vehicles for a total value of 10 million Indian rupees ($143,000) since March, and it currently has more than 1,000 registered users, including investors and borrowers. The company doesn’t offer other forms of Islamic vehicle financing such as murabaha (cost-plus profit) as it is not in the business of buying and selling vehicles.
P2P financing has gained momentum in India in the last couple of years, with the 50 or so platforms carrying outstanding loans estimated at 500-600 million rupees in 2017, according to Indian credit rating agency CARE Ratings. The country’s P2P market is expected to grow to $4 billion by 2022 as the model matures, according to a July 2017 report by PricewaterhouseCoopers. This is 160 times the P2P lending size in 2017.
The Reserve Bank of India (RBI), the country’s central bank, announced new guidelines in October 2017 to regulate the P2P sector, bringing the platforms under the regulatory ambit of non-banking financial corporations (NBFCs). This created a new category, NBFC-P2P. All existing P2P platforms were asked to seek certification as NBFC-P2P firms within three months. ECW applied for the NBFC-P2P licence in December and relaunched in March this year after fulfilling all compliance requirements although it has not, to date, received official certification from the RBI. NBFC-P2Ps are not allowed to take more than 50,000 Indian rupees from a single lender for any single deal.
While India doesn’t permit financial institutions to offer Islamic products under the conventional banking or insurance regulations, NBFCs often use alternative routes to develop financial products based on the principles of Shariah that don’t violate regulations.
Source Salaam Gateway