Image: Cafe Dissensus
With Deepak Mohanty-led committee, constituted by RBI, recommending ‘interest-free windows’ in the existing conventional banks, experts see this as the first step towards the introduction of the Islamic (interest-free) banking in the country.
The move has been welcomed by people who did not participate in the banking sector because of their faith. “I do not have a bank account. Participating in the system that deals with haram money is not allowed by Islam. If interest-free banking is introduced, I will gladly open an account,” says Mohammad Rafiq (24), an economics student in Jammu University.
Several Muslim organizations like Indian Centre for Islamic Finance and Islamic Banking Kashmir has also welcomed the recommendations of the committee. Notably, the Committee on Financial Sector Reforms (CFSR ) 2008 pointed out that a good section of Indians do not use banking services for the reasons of their faith, thus the country misses on their savings which could have been otherwise utilized for the betterment of the economy. Islamic banking works on profit and loss sharing principle and money is only invested in areas allowed by Shariah. However, banking operations in India are governed by regulations that do not permit interest-free banking like the Bank Regulations Act 1949.
“The Section 21 of the Bank Regulations Act necessitates the interest on deposits. The idea of ‘Profit and Loss Sharing investments’ is clearly prohibited by its sections 5(b) and 5(c),” says Mehboob Makhdoomi , founder of Islamic Banking Kashmir, a Research, advocacy and awareness group. India being an emerging economy and home to about 180 million Muslims, experts are optimistic about its success keeping in view the global scenario after the recession.
Pertinently, not even one Islamic bank had to be bailed out in the aftermath of economic meltdown post-2008 and total Islamic financial assets were estimated at around $2 trillion in 2015.
However, despite an overwhelming demand and secure operations, the introduction of Islamic banking in the country has been dragged for too long because of political and legal hurdles. The idea has been dragged into the communal arena with Hindu right-wing opposing the concept. “The moment they hear about Islamic banking or any such separate mechanism for Muslims, it appears communal to them and they take it as yet another attempt by Muslims to Islamise India, which is far from reality” says Makhdoomi.
In several countries, the world “Islamic” has been replaced with ‘alternate’, ‘interest-free’ or ‘participative’ to encourage non-Muslims to participate. In Malaysia 40% investors and 60% borrowers are Non-Muslims.
The increasing farmer suicides in the country because of bank debt points out the failure of conventional banking system.. In that case, if Islamic banks share the loss with the farmers, the problem would be solved, feels Prof Reyaz Ahmad Khan, an expert in Contemporary Arab Economics and Islamic Finance. Moreover the introduction of Islamic banking practice is going to attract huge investments from the Gulf countries.
All eyes are now on the government whose response will determine the Islamic Banking scenario for India.