Islamic Banking has been a hot topic in India for the last few months. The debate on whether Islamic Banking is permissible in India has a lot of dimensions. In an interview with Pramod Thomas, H Abdur Raqeeb, Convener, National Committee on Islamic Banking, points out the benefits of Islamic Banking to the deprived class. Abdur Raqeeb, who is also the General Secretary of Indian Center for Islamic Finance (ICIF), here describes what really Islamic Banking means.
First of all, I wish to clarify that the recent verdict of the High Court of Kerala was not on Islamic banking but for the participation or rather having a share of 11% in an NBFC-Non Banking Financial company- based on Shariah principles by State of Kerala or its agencies like Kerala State Industrial Development Co-KSIDC.
Dr Subramaniam Swamy’s argument was that being a secular country, Kerala government cannot take part or promote an Islamic Financial Company and it was as if promoting the Islamic religion or propagating the religion which is against the secular edifice of the Indian constitution.
Again Kerala government cannot spend tax payers money on such ventures according to the article 27 of Indian constitution.
The verdict is significant in the sense that for the first time the court has ruled that it is not against secular concept of the Indian constitution to promote religion based finance like shariah-(Islamic principles of finance and business) based companies and regulates them.
This is a significant and historic judgment and in future will lead to Islamic banking in our great country along with conventional banking.
This is just like a non-vegetable hotel having and allowing a separate section for vegetarians as well. Now there is a scope that the GOI will allow both the conventional finance based on interest and Islamic finance and banking which is interest free
What is the future of Islamic banking in India?
The future is very bright for Islamic banking in India. Sixty percent people of the country are not covered by the conventional banking and most of them are marginalized and the minorities.
Small farmers, skilled laborers, petty traders do not have collateral and not credit worthy as per banking system and minorities like Muslims are excluded because of interest based banking which is strictly prohibited in their faith.
If an alternate system which is interest free and ethical and provides a platform for the marginalized, this is going to be a big boost for this Islamic banking.
Planning Commission of India constituted a high level committee on Financial Sector Reform in 2008 headed by Dr RaghuRam Rajan, former IMF Chief Economist and some of the outstanding bankers and legal experts of India and this committee, CFSR, recommended that Interest free banking to be included in the main banking system of India for” inclusive growth with innovation.”
In simple terms what is Islamic banking and how it can be beneficial for common man?
Some of the salient features of Islamic banking are as follows:
It is interest free
It is based on profit and loss sharing concept- risk and reward in most of the venture
Against any speculative trade like futures, derivatives etc
Against investment on unethical projects like liquor, gambling, pornography, weapon of mass destruction, environmental hazards etc.
Investment on real economy and asset based and not engaged on financial engineering which is money being traded against money.
Is the term Islamic the main obstacle for the popularity of Islamic banking, If so how can you convince others?
To a certain extent, the word Islamic is misunderstood by a large segment of the people and this is also due to misinformation by the media which parrots blindly the western propaganda.
Islamic finance and banking is therefore named as alternative banking in Britain, participatory banking in Turkey, interest free banking in some countries like Nigeria.
Any name is possible but the principles of Shariah are to be followed to a large extent which is ethical and socially responsible.
Another misconception is that Islamic finance and banking is for Muslims only. This is not true. In Malaysia, forty percent customers in Islamic banks are non Muslims and in Britain twenty percent customers are non-Muslims.
Further, secular modern and industrialized countries where Muslim population is not large, like Britain, France, Hong Kong and Singapore, the regulators have accommodated Islamic finance and banking and allowed a level playing field along with the conventional banking.
If London, Paris, Zurich, Singapore and Hong Kong can become hub and house of Islamic finance and banking, why not Mumbai and Cochin?
How a business man will get assistance from Islamic banking for fund raising?
According to Dr Hussein Hamid Hassan, Chairman, Shariah Board, Dubai Islamic Bank, Conventional banks have only one product whatever their name or product may be, they are based on interest, but Islamic Banks have product what each customer, every project and every circumstance tailor made like, Mudharaba, musharaka, Ijara, Sukuk, Takaful, Qard Hasna etc.
The details can be had from any standard book on Islamic Finance or from Google websites on Products in Islamic Finance.
You can contact Abdur Raqeeb at [email protected], www.icif.in, Mob: +91 9444075501 or D-309, Abul Fazl Enclave, Jamia Nagar, New Delhi-110025