MOHAMMAD NAUSHAD KHAN interviews the Islamic Finance experts, who have been campaigning continuously to make Islamic Banking a reality in India
At a time when Islamic banking was on the threshold of getting wide acceptability in India, the policy U-turn by the Reserve Bank of India (RBI) has surprised everyone. The advocates of Islamic banking, its feasibility, viability and profitability in the Indian context still believe that despite the RBI shutting its door to this ethically-driven finance system, India will eventually embrace Islamic banking.
The Reserve Bank has decided not to pursue a proposal for introducing Islamic banking in India. “Taking into account, the wider and equal opportunities available to all citizens to access banking and financial services, it has been decided not to pursue the proposal further,” the central bank said in its reply to an RTI application filed by a PTI correspondent.
The RBI was asked to provide details of steps being taken for the introduction of Islamic or “interest-free” banking in India. The proposal to introduce Islamic banking was first made by a committee on financial sector reforms chaired by former RBI governor Raghuram Rajan in 2008.
Dr H Abdur Raqueeb, who heads the India Center for Islamic Finance (ICIF), said the RBI’s decision was unfortunate. The ICIF has been interacting with both the Ministry of Finance and the RBI in this regard. The Anand Sinha Committee in 2005 had concluded that the Indian banking regulations had to be amended by Parliament to accommodate Islamic banking, and had sought changes in taxation laws. When Mr Wajahat Habibullah was chairman of the National Commission for Minorities, he arranged a special meeting between Finance Ministry officials and the ICIF that concluded that the ICIF should prepare a feasibility report and submit it to the RBI deputy governor.
Dr Abdur Raqueeb further added that Shariah experts from Dar Al Shariah Dubai and other retired banking officials of the RBI and national banks got together and prepared a draft proposal for the RBI so that interest-free windows could be opened in some conventional banks with a notification by the Government of India without going to Parliament for amendment in the banking regulations as required by the Anand Sinha Committee. Later the RBI constituted an Interdepartmental Group in 2013 to look into the technical, regulatory and legal issues for introducing Islamic banking in India. This important group visited several countries, including Malaysia, and after a thorough study submitted a technical feasibility report to the Finance Ministry that to begin with an interest-free window can be launched with simple products with the name Participatory Banking.
“On the instructions of Prime MinisterNarendra Modi, the RBI again constituted a special committee named Committee on Medium-term Path on Financial Inclusion headed by Deepak Mohanty which included one full chapter on interest-free windows in the banks. Also in the Annual Report of Reserve Bank of India 2015-16, it was included in the agenda of 2016-17 that interest-free windows will be introduced in the banks for those who are excluded from the banking sector due to religious reasons,” argued Abdur Raqueeb.
According to him, when the news was reported by PTI regarding the government and RBI introducing interest-free windows, Shiv Sena member of parliament Charakant Khaire opposed this concept in Parliament. The government and subsequently the RBI took an about turn and proclaimed that as equal opportunities were available to all citizens to access banking and banking services the introduction of interest-free windows in the banks was not being pursued. Financial circles are of the opinion that the government and the RBI have taken a negative stand due to the political atmosphere prevailing in the country. Across the world, the Islamic finance and banking sector is flourishing with the active support of the World Bank and the IMF.
Islamic finance and banking analysts and thinkers are of the opinion that the opposition to Islamic banking is political and this sector has been opposed on religious lines without giving logical thought on its lucrative business angle. Its opponents have not bothered to look at the benefits it would bring for the Indian economy. Merely opposing it for its religious tag is not a good idea and exposes the ignorance on the subject.
Syed Zahid Ahmed, founder of Economic Initiatives, working on alternative financial products for inclusive growth in India, said: “I think we should avoid labeling interest-free banking as Islamic banking. Otherwise it will only invite opposition from the majority community and political leadership in India. We will keep pursuing interest-free banking without a religious tag and probably in collaboration with non-Muslims.”
There is no doubt that after the RBI decision all discussion on Islamic banking is back to square one. But those who have relentlessly worked to promote it in India are hopeful that one day Islamic banking will become a reality in the country.