The condition of Muslims in most non-Muslim countries is not very encouraging. They are educationally and economically backward and unable to play a leading role in their societies. While this may b e due partly to discrimination against them, it is also due partly to inadequate organisation on their own part to uplift their condition. Hence, patient, quiet and continued struggle is needed to enable the Muslims to improve their spiritual, educational and economic condition and to play a more effective leadership role in their countries.

Since this brief note is addressed primarily to the role of Islamic banks in non-Muslim countries, it will not deal with ways of improving the spiritual and educational level of Muslims which is undoubtedly very crucial in elevating their socio-economic and political position. This note will rather be concerned primarily with the question of raising the economic well-being of Muslims.

One of the major problems faced by Muslims in non-Muslim societies is their inability to get lucrative jobs even when they have the professional and vocational training. Such jobs go primarily to members of the rich and influential families of the majority community. While an effort should undoubtedly be made to remove this drawback, it will be difficult to do so. The prevailing discrimination has deep-seated historical, cultural and economic roots and will tend to continue, making it difficult for the Muslims to raise their share of the job market. Hence, the only Alternative that the Muslims have for improving their economic condition is self-employment. It is not possible to make a significant headway in this direction unless financing is made available to those who have the necessary vocational training, entrepreneurial ability and business integrity. It is in the provision of such financing that the Islamic banks can play an important role.

There is no doubt that Muslims also make a substantial contribution to the pool of deposits in the conventional interest-based banks. However, it is in the nature of such banks to lend mainly to those individuals and firms who have the necessary collateral to offer and who have, according to Lester Thurow, "large internal savings, regardless of whether they are earning above average rates of return on their capital investment". The result is that, as admitted by the Morgan Guarantee Trust Company, the sixth largest bank in the U.S., the banking system has failed to "finance either maturing smaller companies or venture capitalists", and "though awash with funds, is not encouraged to deliver competitively priced funding to any but the largest, most cash-rich companies". This leads to the recruitment of entrepreneurs from mainly the rich and to the failure of society to utilise its total reservoir of entrepreneurial talent. If the qualified poor entrepreneurs of even the majority community are unable to get financing from the conventional banks, it is even unlikely that middle class entrepreneurs of Muslim minorities would be able to get financing for self-employment even if they have the necessary know-how and entrepreneurial ability.

If lucrative jobs and financing for self-employment are both not available to Muslims, their fate would be just wage employment. And wage employment is unable to utilise their skills optimally or to pay them adequately to fulfil even their needs, let alone to save for investment. Dr Muhammad Yunus of the Grameen Bank, Bangladesh, has hence aptly emphasised that financing for self-employment should "be recognised as a right that plays a critical role in attaining all other human rights".

The Islamic banks should try to mobilise the deposits of Muslims, which are now being used primarily to enrich the rich and influential members of the majority community and to use these to harness the pool of entrepreneurial talent among the Muslim poor. This will help bring to fruition the rich contribution that such entrepreneurs can make to the economic uplift of the Muslim community.

Two apprehensions may be raised here. Firstly, will the Islamic banks be viable if they lend to small and micro enterprises (SMEs). The apprehension is not valid because SMEs have a record of better performance in terms of growth in real per capita profits in industrial countries where small entrepreneurs have been encouraged. Even in developing countries with their extremely difficult environment for SMEs, they have consistently generated, according to a Michigan State University study, more output per unit of capital and are generally more efficient than their large-scale counterparts. Accordingly, the economic profit of smaller firms is consistently larger than that of large firms. Hence, it may be expected that SMEs may be able to generate higher profits for the Islamic banks and thus help raise their profitability.

The second apprehension is that even if the SMEs have higher profitability, will they live up to their repayment schedule. The experience of the International Fund for Agricultural Development (IFAD) is that credit provided to the most enterprising of the poor is quickly repaid by them from their higher earnings. The Report of the Select Committee on Hunger also indicates that the "micro enterprise projects have recorded significant and impressive loan repayment rates." Testimony from the Grameen Bank in Bangladesh indicates a constant repayment rate of 99 percent since the bank's inception. Other SME credit programmes have yielded similar results. Hence there is no reason to be unduly apprehensive about loan losses from such financing.

The additional expense incurred in evaluating and financing SMEs may then be the major problem for Islamic banks. A substantial part of this extra cost may be offset by the returns from such financing and also, possibly, by ZD means of reasonable but not prohibitive front-end fees. If necessary, a part of the additional cost may be offset by the Muslim community through a fund established for this purpose. It would be better for the community to allocate funds for its poor self employed than to pass out charity to them on a continuous basis. When the SMEs have been established and the system has started operating smoothly the costs to be shared by the community may go down.

Provision of financing for increasing self-employment is, however, not an option that the Muslim community may or may not undertake. It is rather a must. Without this it will not be possible to raise the economic well-being of its members in a country where there is discrimination against Muslims in the lucrative jobs market and the conventional interest-based banks do not make adequate financing available to SMEs of even the majority community, leave alone the Muslims. The Islamic banks in such communities, hence, have an important role to play. If they also pass the funds mobilised by them from Muslims to rich members of the majority community, then they would be guilty of misappropriation of funds. However, even if they allocate funds primarily to the rich and influential members of the Muslim community they will have failed to play the rich role that they are capable of playing in improving the economic condition of the Muslim masses.