SYED ZAHID AHMAD urges the RBI to recognise and declare the quantum of credit loss to Indian Muslims due to non-availability of interest-free banking so that the required amendment or initiative for Islamic banking may be considered an act of providing economic justice for Muslims.
While we applaud Reserve Bank of India (RBI) for paying due attention over strategic plans for financial inclusion, we are sorry to observe that it has yet to recognise the acute financial exclusion of Indian Muslims. Should we believe that Muslims being just 0.78% as RBI employee are not enough to get the due attention of RBI over Muslims’ financial problems? If so, then should we call RBI secular or what is meant for secular democracy and strategic plan of inclusive growth in India?
The Census, 2001 data shows that the percentage of households availing themselves of banking facilities is much lower in villages where the share of Muslim population is high. If we exclude the districts of four southern states and disturbed Jammu & Kashmir, we find that 84% of top 100 Muslim populated districts (with over 52% Indian Muslim populations) are among most financially excluded districts with having 95% and more adult population without bank loan accounts.
The findings of Sachar Committee Report reveal that the access of Muslims to bank credit is very low and the average size of credit is also low compared with other religious communities. While Muslims share 11.86% of PSA accounts, they got just 4.7% share in PSA outstanding amounts with 7.4% share in saving deposit amount with all scheduled commercial banks (SCBs) in 2005. The position is not better in specialised institutions like SIDBI and NABARD. Muslims have less than 4% share in all refinances by NABARD, while they do not receive even 0.5% of the finances made by SIDBI. Considering the same ratios of deposits and credits for Muslims in National Aggregate deposits and Bank Credits by year 2009, we get following awkward monetary figures.
| Deposits / Credits Ratios by Scheduled Commercial Banks (SCBs) | Rs. Crores |
| Total Aggregate Deposits with SCBs | 3,834,110 |
| Estimated Aggregate Deposits with SCBs made by Indian Muslims | 291,392 |
| Total Credit extended by SCBs | 2,775,549 |
| Estimated Credits extended by SCBs to Indian Muslims | 130,451 |
| National average Credit Deposit Ratio at SCBs for all communities. | 72.39% |
| Desired extendable amount of Credit by SCBs to Indian Muslims. | 210,942 |
| Average Credit Deposit Ratio by SCBs to Indian Muslim. | 44.77% |
| Estimated Credit loss to Indian Muslim as % of their deposits. | 27.62% |
| Estimated Amount of Credit loss to Muslim Community. | 80,491 |
Source: – Data derived by analysing the RBI Annual Report 2009 and Sachar Committee Report
Though the report by Committee on Financial Inclusion did not mention a single word about financial exclusion of Indian Muslims, the Committee on Financial Sector Reforms sought the relevant facts and figures about financial exclusion of Indian Muslims. They observed that this exclusion is mostly due to non-availability of interest-free banking and finance. Thus the Committee made following significant recommendations:
“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.”
Encouraged with this recommendation, the proponents of Islamic banking in India and abroad are making tireless efforts to get regulatory provisions for interest-free banking in India, but the legislators cannot amend the Banking Regulation Act unless they receive any relevant plea in this regard from the RBI. The issue has been well discussed with the regulators and policy makers but the question is still there – ‘who will bell the cat’ because raising any bill in the Parliament to amend Banking Regulation Act to allow Islamic banking may uproar Indian politics dominated by non-Muslims.
Now it is important how RBI recognises the significance of Islamic Banking for financial inclusion of Muslims and interest-free finance required by public and private sector for inclusive growth; and duly recommend the Government of India to amend the Banking Regulation Act. It should not be done as an act to favour Muslims or Islam but to achieve financial inclusion and interest-free finance for inclusive growth. Otherwise persons like Dr. Subramaniam Swamy may submit writ petition in the court against RBI and Government of India blaming to favour particular Muslims and Islam.
It is time RBI recognised and declared the quantum of credit loss to Indian Muslims due to non-availability of interest-free banking so that the required amendment or initiative for Islamic banking may be considered an act of providing economic justice for Muslims and not an act of favouring Islam or Muslims over other communities or religions.
Hope RBI will act accordingly to restore the required socio-economic justice in financial regulation among different faith-based communities and not let the financial exclusion of Indian Muslims unattended with a fear of political drama by any political party or activists.