A thought provoking presentation on Growth and Progress of Islamic Banking in Gulf and Prospects, Challenges and Possibilities in India was made by H Abdur Raqeeb, General Secretary Indian Centre for Islamic Finance, at India Arab Cultural Centre, Jamia Millia Islamia, New Delhi on 1 October 2013.
Islamic banking is galloping and has constantly registered a growth rate of 15/20 per cent and is ready to gain momentum across the world. It has been widely accepted in the Gulf. It has made significant headway in many western countries and is on the threshold of adoption in India. Its wide claim acceptability can be measured from the fact that 70 countries are practising Islamic finance and banking including the UK, Japan, Canada and Singapore, and 715 banks across the world over $1.4 trillion assets fall under the Islamic banking system.
Dr Abdur Raqeeb, who is instrumental in presenting the idea, and putting his best to persuade and convince the concerned authorities about the feasibility and profitability of the Islamic banking, has succeeded to a greater extent in clearing the doubts and convince economic thinkers and advisors in India, including the high echelons in RBI. Dr Abdur Raqeeb said the acceptance and operation of Islamic banking will certainly change the face and future of India. During his presentation he wondered when London, Tokyo, Hong Kong, Singapore and Paris can become hubs and houses of Islamic finance and banking, why not Mumbai?
He also drew a line of distinction between the notion behind Islamic banking and the conventional banking, saying: Islamic banking focuses on investment whereas conventional banking focuses on lending. Islamic banking emphasises soundness of project whereas conventional banking emphasises ability to repay. Likewise, in Islamic banking there is coordination with partners in recourse mobilisation whereas in conventional banking there is dependence on borrowing in resource mobilisation. Islamic banking applies moral criteria in investment whereas conventional banking applies financial criteria.
In Saudi Arabia nearly 95 per cent of all new financing is based on Islamic finance and all conventional Saudi banks have Islamic windows. Many western banks are providing Islamic banking and financial services like Saudi British Bank, Saudi American Bank, Saudi Holland Bank, Citigroup, etc. Islamic Jurisprudence (Fiqh) Academy based in Jeddah, the largest representative body of Shari’ah scholars, is represented by all Muslim countries. However, in UAE there has been 20 per cent growth rate in Islamic finance and Islamic financial products constitute 25 per cent of total banking transactions.
In Dubai, Dubai Islamic Bank (DIB) is considered the first Islamic bank in the world, third largest Islamic commercial bank in the Gulf to attract global financial institutions. Dubai International Financial Centre (DIFC) was established and operates as a financial free zone. World-class regulator and regulatory regime is the Dubai Financial Services Authority (DFSA).
To Dr Abdur Raqeeb economic disparities in India has created super rich and super poor and it has to be addressed with some alternative measures and opening of windows for Islamic banking and finance could help uplift weaker sections of society and also boost India’s economy. The basic characteristics of Islamic finance is that the wealth produced in a society must be distributed in a just and fair manner, so that it may not be concentrated in the hands of a few people. ‘So that it may not circulate only among the rich among you.’ (Holy Qur’ān 59:7) Islamic Finance insists on Real Economy, where there is a physical presence for what is traded, manufactured, leased and sold. It prohibits speculative trading practices beautifully termed as Financial Engineering consisting only of tradable paper with financial values that rise and fall based upon the value with no backing of Real Assets.
Islamic banking is not Muslim specific. Islamic banking focuses on transparency, cooperative ventures, shared risk and ethical investing attracts a wide range of both Muslims and Non-Muslims alike. In Malaysia, more than 40% of the investors and 60% borrowers are non-Muslims, mostly Chinese, in Islamic banks. One in five applicants for some of the Islamic products is non-Muslim in Islamic Bank of Britain.
Dr Abdur Raqeeb stressed a recommendation made by a High Level Committee on CFSR (Committee on Financial Sector Reform) in 2008 which was then headed by the present RBI Governor Dr. Raghuram Rajan for an interest-free finance and banking. This recommendation advocates, “Another area that falls broadly in the ambit of financial infrastructure for inclusion is the provision of interest-free banking. Certain faiths prohibit the use of financial instruments that pay interest. The non-availability of interest-free banking products (where the return to the investor is tied to the bearing of risk, in accordance with the principles of that faith) results in some Indians, including those in the economically disadvantaged strata of society, not being able to access banking products and services due to reasons of faith. This non-availability also denies India access to substantial sources of savings from other countries in the region. While interest-free banking is provided in a limited manner through NBFCs and cooperatives, the Committee recommends that measures be taken to permit the delivery of interest-free finance on a larger scale, including through the banking system. This is in consonance with the objectives of inclusion and growth through innovation. The Committee believes that it would be possible, through appropriate measures, to create a framework for such products without any adverse systemic risk impact.”
In India, IT majors like Tata Consultancy Services (TCS), Infosys, i-flex among others are now hopping on to the Islamic banking bandwagon by offering software solutions geared to meet the requirements of this niche banking. In Kerala the idea of Islamic banking was strongly opposed by Dr. Subramaniam Swamy who had filed a petition in the Cochin High Court. But later on decision came in favour of Islamic banking.
It is reported that in India, thousands of crores earned in interest is kept in suspended accounts as believers do not claim it. The assets controlled by Muslims are estimated to be $1.5 trillion and growing at 15% a year. In Kerala alone, it is reported that this money could be above Rs.40,000 Crore. Research reveals that a handsome bulk of money in India owned by the believers is lying idle which if invested in profit sharing basis and utilised properly, can have a major impact on the Indian economy.
Dr Javed Ahmad Khan and Dr Rafiullah Azmi of the Centre for West Asian Studies, Dr. M. H. Ilias, Aftab Ahmad and other faculty members of India-Arab Cultural Centre, including teachers and students, and staff members of ICIF Thalha Hussain and Ali Jasim were present in the programme.