Islamic Banking Has A Bright Future in India, Abdur Raqeeb

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.

How do you perceive the recent Kerala High Court order regarding Islamic banking?

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. Continue reading

In good faith – Efforts to introduce Islamic banking in India are gaining momentum

In good faith

Going the ethical way: Islamic banking makes depositors virtual shareholders

Efforts to introduce Islamic banking in India are gaining momentum

By Vijaya Pushkarna

Eighteen months after the Committee on Financial Sector Reforms under Raghuram Rajan recommended the inclusion of interest-free banking, the effort to add this salient feature of Islamic banking into the country’s financial sector has gained momentum.

The reason lies in the very attractive stock pile of over $3.5 trillion lying with Arab investors. They will bank or invest them only in an “interest-free banking system” in consonance with the Sharia, the Islamic code of law. As of now, the Indian banking system does not have an option of people investing without seeking interest.

“The only stumbling block in almost all the savings and investments of the Arab world coming to India is the absence of regulation allowing interest-free banking,” said Dr Ausaf Ahmad, former chief economist of the Jeddah-based Islamic Development Bank. At a recent international conference organised by the Indo-Arab Economic Cooperation Forum and Delhi-based Institute of Objective Studies, there was a general consensus that India was ideally placed to be the investment destination because of its vibrant democracy, socio-economic policies and growth potential.

“Arab investors have lost confidence in the west after 9/11. The $500 billion India needs for infrastructure in the next five years, for instance, will come through the Islamic banking route,” said Abdur Raqeeb, convener of the National Committee on Islamic Banking and general secretary of the Indian Centre for Islamic Finance. He is confident that the finance minister would consider the proposal of interest-free banking.

Mohammad Manzoor Alam, chairman of Institute of Objective Studies, said that those spearheading the move to have Islamic banking say that commercial banking has resulted in capital being concentrated in a few hands.

Islamic banking makes depositors virtual shareholders, getting a share in the profits and equally sharing losses. The investments will also go into fields considered noble, and not into sectors like liquor and tobacco manufacturing and production of arms and ammunition. “Interest-free banking is about justice and equity, and about ethical investment,” said Alam. Islamic banks in the UK and other countries have substantial participation by non-Muslims, because the investments will be in companies involved in non risky businesses.

It is a challenge to convince the plural and secular Indian society that Islamic banking is not just for Muslims. P. Chidambaram preferred to call it a “participatory banking” concept when he promised to set up a committee to examine the feasibility of interest-free banking.

In India, there are a number of small credit societies that operate the interest-free route. A couple of years ago, a private company launched the India Islamic Index comprising equity of Sharia-compliant companies.

Rahman Khan, deputy chairman of the Rajya Sabha, and Salman Khursheed, minister for minority affairs, have been advocating the need to include interest-free banking as an option. “We are asking the authorities to open the doors because India is aspiring to be the hub of knowledge power, is a leading global player and wants to be the leader of the developing countries. These objectives won’t be achieved unless the roadmap of development in the fields of capital intensive social sectors gets the requisite funds,” said Alam.

A beginning of sorts was made when SEBI approved Sharia-compliant mutual funds floated by Taurus, Reliance, Tata and Bajaj Allianz. RBI Deputy Governor K.C. Chakrabarty recently told a delegation that though they were ready, it was for the government to amend the banking regulations.[email protected]@@&contentType=EDITORIAL&sectionName=TheWeek%20Business&programId=1073754899&contentId=7087515

Islamic finance can do wonders, particularly in a country like India

Prasoon S. Majumdar

Editor, Economic Affairs

The Sunday Indian

It is reported that the Kerala state government is all set to tap the investments from the Middle-East region through the Islamic finance route. It is also reported that the centre has yet not given a nod for Islamic banking, though it has been under deliberation for long.

Though there are challenges in creating an enabling framework for Islamic banking, given the conventional banking regulations, but then some kind of proactive thinking is required for opening doors for Islamic finance, knowing well that it has done wonders in the other parts of the world.

It is a known fact that Islamic finance is governed by Sharia, and is known to be conservative with its philosophy. Under Sharia, interest income is not permitted and along with that the funds cannot be used for speculation, alcohol and a few other sectors.

This is still fine, but the biggest diversion of Islamic banking from the conventional Indian banking is that the former does not just lend, but becomes an equity partner in the project, sharing both the profits and losses, whatever might be the case. Another activity which defines Islamic banking is that the banks can engage in trading, purchase and resale of properties and investment and various other activities, which is not permissible under the Indian Banking Regulation Act, 1949.

Along with this, there are constraints as the bank rate — maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) as per the provisions of Banking Regulation Act, 1949, involve the concept of interest, which is not permissible under Sharia Act.

All in all, there are challenges but then just like there are separate regulations for Non-Banking Financial Companies (popularly known as NBFCs) in India, similar provisions can be created to cull out Islamic banking and finance within the country.

But then — as per few experts opinion, if being conservative is an issue then in that case the scheduled commercial banks in India are no less. That is the reason probably that the current NPA or the Nonperforming Assets of most banks on an average is almost negligible and that is also the reason that Indian banks are by far immune to global crises.

But then with the growing needs from Indian industry and overall infrastructural development, Indian banks can only do that much. Knowing the fact that how Islamic finance have done wonders to economies like Malaysia and Indonesia.

Not just that, Islamic banking is popular in the US too — so much so that as of 2009, it has been home to at least 19 odd providers of Islamic banking products and services including retail banking, investment banking, mortgages services, to name a few.

The fact is, Islamic finance can do wonders, particularly in a country like India.

As such culturally, the Sharia philosophy is not much departed from Indian ethos, but more than that if India can go ahead and create provisions for Islamic funds then, the later would find an worthy investment destination, as India has a huge investment appetite for years to come and more than that returns on investment are relatively higher when compared to other parts of the world.

Moreover, Indian industrial borrowers’ mindset has been attuned to conservative borrowing which makes the investment/lending option even safer. Not just this, with growing political and financial unrest in the Middle-East region, Islamic finance can find a safe heaven within India.

In addition to all this, provisioning of Islamic banking would also open a window of opportunity for Indian banks, as they can then mobilise funds from regions like Middle-East and invest in India, which  is currently nor permitted.

It is my own personal experience that there are a lot of investors who are sitting on the fence, across the Middle-East region, eager to invest in India, particularly the Indian real estate, but then they are waiting for an able partner who can effectively mobilise their funds through the Islamic banking route.

It is needless to state that Islamic finance pose a huge opportunity and we should be proactively thinking in provisioning the same within the country. Post 9/11, petro-dollars are actively eyeing for a safe investment destination as they have been extremely apprehensive about investing in the US.

And this is the opportunity that India should avail, given the fact that as a destination its economic scenario is not just safe but vibrant. It has been reported that France has already amended its laws to issue sukuk (Islamic bond) of one billion euro. Also Indonesia has launched its dollar sukuk earlier this year, which was hugely successful.

And lastly if most developed countries like UK, Japan, Singapore and Hong Kong have embraced Islamic finance and banking, then what are we waiting for?

When London, Tokya, Singapore and Hong Kong can become hub of Islamic Finance, Why not Mumbai or Cochin?

H Abdur Raqeeb explains finer points of Islamic Banking to Mr Naro Naramain Meena. At left is Engr Md Saleem
A delegation concisting of Engineer Muhammed Saleem, President, Jamaat e Islami Hind, Rajasthan and Mr. H Abdur Raqeeb, General Secretary, Indian Centre for Islamic Finance met Naro Naramain Meena, Ministry of State for Finance in New Delhi to discuss the feasibility of Interest Free Islamic Banking in India.

Mr. Engineer Saleem submitted a Memorandum on behalf of Rajasthan Muslim Forum, which is an umbrella organisation consisting of Jamaat e Islami Hind, Mansuri Panchayath, All India Majlise Mushawara, Progressive Muslim Front, Indian Union Muslim League, Association for Protection of Civil Rights and host of other organisations and associations. Memorandum requested to accept the recommendation of Dr. Raghuram Rajan, Chairman, Committee on Financial Sector Reforms to create a framework for Interest Free banking in our great country.

Mr. Saleem urged in the Memorandum that Islamic banking is not only for Muslim but also helpful for Minorities and Marginalised and shared the recent statement of MS Swaminathan, Father of Green revolution that Islamic Banking can be solution for farmer’s suicide in Vidarbha.

Mr. H Abdur Raqeeb added that 40% customer of Malaysia and 20 % customer of Islamic bank Britain are Non Muslims.

Mr. H Abdur Raqeeb also submitted the important documents related to the methods and techniques adopted by the Modern and Secular countries to create level playing field for conventional and Islamic Banking and argued that when London, Tokya Singapore and Hong Kong can become hub and house of Islamic Finance why not Mumbai or Cochin?

The honourable Minister assured that he would go through the documents in detail and will have discussion with his officials and higher authorities regarding the issue.

Mohammed Sadath, Office executive,  Indian Center for Islamic Finance

Opinion building, not emotion, key for Islamic Banking in India: Dr Manzoor

New Delhi: Please do not present or campaign for Islamic Banking in India as an emotional or communal issue. This is a serious economic issue for which there is a need for opinion building among Muslim masses on one hand, and non-Muslim intellectuals on the other. In fact, non-Muslim intellectuals favoring interest-free banking system should be given leadership of such campaigns. This is the only wise way to make environment conducive for Islamic Banking in a communally polarized society like India. Dr Mohd Manzoor Alam, Chairman, Institute of Objective Studies, expressed these views at a lunch with Muslim journalists here today.

Addressing 20-odd journalists representing almost entire Muslim press in Delhi, Dr Alam who is also General Secretary of All India Milli Council, said that presenting the Islamic Banking issue emotionally will do more harm than benefit. He was just short of condemning Muslim groups and individuals, without naming them, for presenting it as a community issue and meeting person A or person B in power corridors without preparing ground within Muslim community and without involving non-Muslim intellectuals who are in support of interest-free system.

Dr Manzoor Alam (right, in foreground) interacting with Muslim journalists in Delhi
Asked about the role of Muslim press in this regard, Dr Alam who heads several think tanks on Muslim community issues, called on the Muslim media to build informed opinion among Muslim masses as well as intellectuals. “You should publish different aspects of Islamic economy and Islamic Banking. You should also publish opinions of non-Muslim intellectuals who are in favor of interest-free Islamic Banking, besides giving space to reviews of books dealing different aspects of Islamic economic system – this will help build consensus opinion among masses as well as intellectuals.”

Advising Muslim organizations, Dr Alam said they should not make it a religious or emotional issue. Rather they should push up non-Muslim intellectuals who are in favor of Islamic banking to come up for opinion building and advocacy.

“Rather than meeting person A or person B in government corridors and citing experience of Islamic Banking in other countries, what is more important is to convince the Muslim masses here for Islamic Banking, and build opinion at intellectual level among Muslim and non-Muslim communities.”

He also supported the view that rather than using the term Islamic Banking which may not sound ear candy for many in a communally polarized society like India, other terms denoting the actual nature of Islamic banking system can be used.

He cited an example. Some time back he led a delegation to P Chidambaram who was then Finance Minister. Dr Alam told him his team wanted to discuss “participatory banking” with him. Chidambaram readily agreed and said this term may help the government out of a sort of dilemma regarding Islamic Banking.

Expressing his happiness at Riyadh Declaration that called for large scale economic ties between India and Saudi Arabia, Dr. Manzoor Alam, who is also President, Indo-Arab Economic Co-operation Forum, said his forum had been striving for strong economic relations between India and Arab World and large scale investments in each.

In the first week of this past February, Institute of Objective Studies and Indo-Arab Economic Co-operation Forum organized a two-day international seminar calling for massive investments for Arab World into India particularly in the backdrop of global meltdown. “Beyond the Meltdown: Search for Options” was the theme of the seminar.