Some 40 years ago top notch scholars of Islamic movement such as Prof. Nejatullah Siddiqi, Prof. Khursheed Ahmad and Prof. Fazlur Rahman Faridi did some pioneering work in the field of Islamic Finance. At that point of time no one took them seriously. The idea of interest free banking was a ‘laughing stock’. However, their efforts bore fruits and especially the Arab World attempted to implement it actively. Islamic Development Bank (IDB) also played a pivotal role in promoting Islamic Banking. In fact founder of Jamaat-e-Islami Maulana Abul ‘Ala Maududi also discussed interest-free economic system. In a meeting in New Delhi, H. ABDUR RAQUEEB General Secretary Indian Centre for Islamic Finance and EX Ameer Halqa Jamaat-e-Islami Hind, Tamil Nadu, discusses with SAAD BIN ZIA about Islamic Financial System and Islamic Banking. Excerpts:
What are the salient features of Islamic Financial System?
First it is Interest-Free. Interest is like cancer that destroys the whole social structure. Secondly, it is free from Gharar i.e. the elements of uncertainty or ambiguity such as short selling, speculation are absent in the Islamic Financial System (IFS). Thirdly, Maysir i.e. gambling is not permitted under the IFS. As you know in gambling only one person is benefited while the rest of the participants of the game lose their money. Fourthly, IFS does not allow investments in or business of Khabeesat or ‘Impurities’ i.e. those which are prohibited by Allah Subhanahu Wa Ta’la. Pork, casinos, liquor and items of health hazards and Weapons of Mass Destruction fall under the category of Khabeesat. Fifthly, the IFS is based on the principle of ‘sharing-the-profit-and-loss’ i.e. ‘risk and reward system’. No single person gains. Sixthly, transaction under IFS is ‘asset based’ and not debt based. It means economic activity is an essential ingredient for business transaction under IFS. Usually a commodity is transferred into money and then this money is utilised to buy the commodity. Under Capitalist system money is converted into commodity and then this commodity is converted into money. Under the present prevalent system the part of ‘commodity’ is absolutely absent. However, under the IFS economic activity and asset based transactions are keys to business.
What are the different kinds of instruments available under IFS?
The IFS offers a whole range of instruments/products e.g. Musharaka (Equity Finance), Mudaraba (Agency Finance), Murabaha (Working Capital Finance), Ijara (Lease), Salem (Advance Purchase), Istisna (Project Finance), Qarz-e-Hasan, Rehabilitation Finance, Takaful (Mutual Insurance), Sukuk (Asset Based Bonds). The beauty of Islamic Banking System is that whenever any need arises a new product can be formulated. Mind you these are and should be based on Islamic principles i.e. they should be free from any kind of interest, all of the clauses of the contracts should be known to all of the parties and it should be stipulated mutually.
Has government of India taken any initiative regarding IFS? What are the challenges IFS is facing in India? And also what are your efforts in this regard?
People in the Gulf after 9/11 are looking for safer destinations for investment and India is emerging as a potentially safe destination for investment. We have been advocating Islamic banking in India for over three decades. When the Janta government was formed at the Centre way back in 1977 we approached the Minister of State for Finance Mr. Zulfiqar to introduce Islamic Banking in India. He asked for a detailed project but unfortunately this government lasted too short. In this regard in 2005 Finance Ministry formed a committee under the Chairmanship of Anand Sinha.
We organised a big seminar in February 2006. This seminar was titled ‘Justice and Equity: The Message of Islamic Banking’. For this seminar we invited Prime Minister Dr. Manmohan Singh but he was unable to attend due to his heavy schedule. But he asked us to approach Finance Minister Mr. P. Chadamabarram. He told us that a government committee which is working on this very issue. Mr. P. Mannikam Minister of State for Finance did make to the seminar. In his inaugural address, quoting the Qur’anic verse, he elucidated that the basic tenets of Islamic Banking address the very basic issues of equity and justice. For all the ills of modern economic system Islamic banking is the solution. Unfortunately, after a few months the government announced in the Parliament that government ruled out the introduction of Islamic banking. After the seminar we had three workshops in Mumbai.
What do you think about the Raghuraj Raman Committee Report?
We conducted a workshop in Doha in which 13 organisations participated. It was presided over by the Indian Ambassador to Qatar. We invited the CEO of Doha Bank Mr. R. Seetharaman who, in his keynote address, favoured Islamic Banking. We sent the proceedings to the Planning Commission of India (PCI). Consequently, the PCI posted this on the website. Most importantly the PCI appointed a committee under the Chairmanship of Raghuraj Raman. This committee posted the draft on the internet. We noted that there was nothing for the Muslims or the marginalised sections of the society. There was no mention of Interest Free Banking or the Islamic Banking although it was claimed as an inclusive model. So, we decided to intervene and approached Mr. Vijay Mahajan and pleaded for the inclusion of Interest Free and Islamic Banking. Alhamdulillah our efforts bore fruits. In the Raghuraj Raman Committee Report there are two paragraphs exclusively dealing with the issue of Interest Free Banking in India. It is one of the landmarks. We focused all of this in media and tried to create public awareness as well apprised the government official about Islamic Banking.
Could you please tell about Indian Centre for Islamic Finance of which you are General Secretary?
Dr. Fazlur Rahman Faridi is President of Indian Centre for Islamic Finance (ICIF). The trustees are: Prof. Nejatullah Siddiqi, Mr. Mohammad Ja’far, Dr. Waquar Anwar, Mr. P. Ibraheem, Mr Noorullah Siddiqui, Ex CEO NABARD, Mr. Abdur Rasheed, formerly with Al-Ameen Financial Corporation, Mr. Abdus Salam Ex Manager Reserve Bank of India and Dr. Obaidullah. The ICIF is on the one hand creating awareness in the media and the public about the Islamic Banking and on the other hand, he is planning to conduct research regarding the future of Islamic Banking in India. It is also engaged in developing the Islamic Banking in the government sector. It is trying to explain its benefits and identify its regulators. It is also trying to give scholarship to more students to study it and looking for persons who can come forward to promote it.