H. KHATKHATAY, Islamic Finance expert, deplores central govt’s refusal to allow introduction of Islamic Banking
Actually, it is a volte-face by the government; this is not the Raghuram Rajan dispensation. So we cannot fault the RBI. We already had an indication last year when Minister of State Sudhir Gangwar stated, without any basis, that there was no need for Islamic finance to promote financial inclusion in view of schemes such as Jan Dhan and Suraksha Bima Yojna, initiated by the government. The introduction of Islamic finance was mooted by various committees as conventional modes of finance are based on interest and other principles which run counter to the religious sentiments of Muslims. The schemes touted by the minister are however only variants of conventional financial products. Now the stand of this government on Islamic finance can be clearly understood, though it continues to hide behind the imposing facade of RBI.
Unfortunately, what is being overlooked due to the government’s anti-Muslim bias, is the potential benefit the country could derive from the introduction of Islamic finance in the country. Countries such as UK, France, Germany, South Africa and Singapore are embracing Islamic finance and are competing to offer the most conducive environment for it. India with its large Muslim population and its strategic location between the two global focal points of Islamic finance – the Middle East and South East Asia – and its traditional strong ties with both these geographies is a natural fit in the Islamic finance landscape. But for the present government, it appears ideology trounces sound economic considerations.
Under the current scenario, it seems we cannot expect any help, understanding or sympathy from this government. The work of lobbying the government and canvassing for greater space and more level playing ground for Islamic finance can continue. But we also need to ourselves exert to strengthen and build up the institutional base for Islamic finance in the country – such as exists. There are opportunities to create important components of the Islamic finance architecture in the country, which are presently either scarce or completely missing.
One instance is of mutual funds. They represent perhaps the most important savings instrument with potential reach that cuts across all segments. The sector has been open for Shariah compliant variants since at least the mid-nineties – more than two decades – and we do not have a single Muslim-promoted institution. There are however two promoted by other groups, of which only one – Tata Ethical Fund – has a somewhat reasonable corpus.
Venture Capital and Microfinance are two poles of a huge space in which the presence of Islamic finance initiatives is negligible (though we sometimes tend to get self-congratulatory and carried away by small successes of some microfinance institutions).
The situation in case of mutual funds is perhaps a pointer of the way to go. Islamic finance is not only for Muslims. We can look for tie-ups with existing players in the industry from the private sector to offer Islamic Finance products. As long as it makes economic sense, we will find takers and gradually build the Islamic finance segment.