Proponents of Islamic banking have welcomed Kerala High Court’s dismissal of the petition challenging the state government’s support to an Islamic financial institution, as a step in the right direction.
Rooting for India to include interest-free windows in conventional banks, Abdur Raqeeb, general secretary of the Indian Centre for Islamic Finance said nations around the world were looking seriously at Islamic banking.
“If UK, Hong Kong, Singapore, France can incorporate Islamic banking, India too can look at it,” he said adding that they had given RBI and finance ministry a report to introduce an interestfree window in conventional banks within the existing Indian banking regulation act. “We are hopeful,” he said.
Conventional banks have started testing the waters, making inroads into the new format. In 2008, Malaysia’s Securities Commission, which aims to make the country a hub for global Islamic banking, approved Reliance Asset Management as an Islamic fund manager. Indian banks ICICI and Kotak have Shariatcompliant windows in their Gulf operations. Asset management companies offer such services as well. But these are at a nascent stage and are likely to grow with Gulf funds and NRIs as potential investors.
Thats not all. Sensing the need for alternative banking systems post the 2008 recession, Aligarh Muslim University started a course on Islamic banking. Launched in July 2009 with a 20-member batch, it hopes to increase the number of seats to 30 with demand.
We sensed demand for this kind of course will grow, Mohammad Nejatullah Siddiqui, former AMU professor who designed the course, said. Although all students in the first batch that graduated last year did not find jobs, Siddiqui said demand was growing with corporate houses offering Islamic financial instruments.
To that end, the Kerala case, though restricted to investing in a non-banking financial corporation, is a step in the right direction. If the Kerala state initiative goes ahead, it will be good.
Raqeeb underlined the need to understand that Islamic banking was not Muslim-specific. In Malaysia, 40% customers are non-Muslims. Islamic banking is perfect for those who need equity finance and applicable for all underprivileged. At present, although government loans are available, few Muslims avail of them as they are interestbased and other backward people can’t avail of them because they are not creditworthy, said Siddiqui. No-ones looking at Islamic banking for the love of Islam, or for the love of Muslims. They do it for the love of money, reasoned economist Ausaf Ahmad, formerly with the World Bank, adding, transparency, accountability and regulation are important issues in Islamic banking, he said. But its worth the investment in creating a legal and regulatory framework to suit the practices.
Islamic funds and Indian companies
Relaince Capital Asset Management has two Islamic funds which are managed from Malaysia
Benchmark Asset Management launched India’s first Sharia-compliant exchangetraded fund on 4 February
Reliance Mutual Fund, UTI Asset Management, Way2Wealth and Edelweiss Mutual Fund have Sharia-compliant mutual funds
The first Islamic bank in the country with active involvement of the Kerala goverment is likely to start operations in Kochi by next year
From an informative analysis by Nandita Sengupta in Times of India. More Here.
Islamic Banking poses no threat
Given the times we live in, it is not surprising that an effort to establish a financial institution run on Sharia or Islamic principles should arouse anxiety, not curiosity. Thus, a decision of the Kerala government to give sanction to the Kerala State Industrial Development Corporation to start a non-banking finance company based on Islamic principles has been challenged in the Kerala High Court.
It is to the credit of the judiciary that it upheld the government’s decision. The court rightly held that the joint venture with government participation was to be run in accordance with Islamic principles as well as the law of the land. As such, it could neither be seen to be at odds with the secular principles enshrined in the Constitution nor as a means to support or promote a particular religion.
The High Court pointedly noted that the government’s intention was to derive commercial benefit from the enterprise, and that money from the exchequer would be paid to an institution which did not propose to engage in religious activities such as preaching or propagation.
Islam forbids making a living off interest as interest is not seen as accruing from an honest day’s work done, unlike commerce or industry. Indeed, Muslim societies down the centuries have thrived on trade. If an observant Muslim abjures interest earnings, it is hard to see how this injures the spirit of a democratic, liberal and secular order in any manner, as the petitioners sought to suggest. From time to time established Muslim businesses in the country have desired to run commercial institutions, including banks, on the Sharia basis of eschewing interest payments. While the unrequited demand for such enterprises has not been quantified, it is well known that Islamic banking products are offered by leading banks in the West.
Assets in this category were estimated at about $400 billion in 2008, compared to $100 billion in 2000 — a four-fold rise in as little as eight years. Many Muslims in India stay away from banks in the fear that normal banking practices are not in keeping with their religious norms. In order to mop up savings from such an extensive source, it makes sense to let banks tap into this vein.
This should enlarge the country’s capital base and help direct it to desired objectives.
The High Court order has permitted the setting up of a non-banking financial company. On the strength of this, it is possible to take the next step of moving toward Islamic banking within the confines of the normal laws of the land. All aspects of the Sharia are far from being violative of the spirit of modern democratic life. Indeed, in many respects, the guiding principles of Islam are meant to mould societies in the direction of equity.
There is no need to be apprehensive about any of this in a country which has the second largest Muslim population in the world.Editorial in Deccan Chronicle, Chennai. More Here.
Here comes Islamic Banking