The RBI’s message in rejecting Islamic banking is disturbing. It is disturbing because the message is against its own recommendation submitted to the competent authority of the Union Government to permit Islamic banking windows on a selective basis in public sector banks. Remark of the 11th Finance Commission that the National Mission of Financial Inclusion can better be achieved through introduction of Islamic banking on account of its inherent potential for furthering the cause of socio-economic justice seems to be mother of this move. Taking cue from the Finance Committee report, the Finance Ministry asked the RBI to look into the matter for which it took help of an inter-departmental committee to finalise and submit its report and hence the said recommendation.
The RBI’s decision seems to be more political rather than economic. Its reasoning that the recently announced government welfare schemes leave no scope for Islamic banking is hollow. Those welfare schemes are no substitute for the banking business. Therefore, space for Islamic banking remains unfilled.
However, there is no place for despair or disappointment. Failure is never final. The upholders of the cause of Islamic banking should treat this as yet another challenge, which apparently seems destructive but essentially it has come to promote, increase and strengthen the campaign. In a democracy, political decisions can be changed.
Introspection also suggests that there have been shortcomings in efforts to raise awareness and education regarding the benefits of Islamic banking. Those in power and the general public have not yet understood the advantages of Islamic banking and how it brings benefits to its users.
Once positive messages reach people, they would learn more about the Islamic banking system and demand its introduction. Hence, there is a need to escalate our efforts to make people at different levels understand the benefits. Upholders of this cause should also think about changing the promotion strategy by way of renaming the new financial system from Islamic to interest-free or participatory banking. Further, support to the demand by way of a consortium of scattered and small interest-free institutions operating successfully may also remove confusion, if any, regarding the sustainability of the system in India.
(The writer is Chief Promoter and Hon. Managing Director of Janseva Cooperative Credit Society Ltd)