Comment

Dr Mohammad Manzoor Alam on the new development towards Islamic banking in India

The Reserve Bank Governor Mr D. Subba Rao’s recent announcement constitutes a significant advance in the field of Islamic banking and finance in India, which has been a cherished goal for all of us, and for the attainment of which the Institute of Objective Studies has worked tirelessly over the last quarter century.

Although in Islamic finance we have already made substantial advance in India in terms of growing acceptance of Shariah-compliant investments and other Shariah-compliant financial services and products. The IOS, with the collaboration of financial consultants Estwind, developed a Shariah index of thousands of companies in India, which has helped pious Muslim investors to invest safely.

However, Islamic banking itself has been a far more tougher nut to crack. Finally, it has begun to crack and we hope to have a proper Islamic banking system in India, which so far had no such institution. Despite a huge body of research carried out by the IOS, and a large number of books published by us, introducing a large number of issues of Islamic economics to the wider society, the scene did not seem to change even a wee bit.

After writing hundreds of articles by scholars associated with the IOS, long debates, including an hour-long discussion on India’s premier TV network on prime time by Prof. Omar Chapra, Prof. Ausaf Ahmad and me on the advantages of interest-free banking and financial mechanisms nothing seemed to have changed. This programme was organized by IOS with great effort.

After years of long consultations with financial experts, seminars by erudite scholars, highest officials of Reserve Bank of India, Securities and Exchange Board of India, besides government secretaries in the ministries of finance, trade and commerce, and law we could come to the conclusion that unless India’s banking laws are suitably amended the Reserve Bank of India cannot allow Islamic banking operations in India.

For the last eight to ten years, the IOS, often with Indo-Arab Economic Co-operation Forum, has run a massive campaign of public awareness of the non-exploitative and stable nature of Islamic banking and finance as well as lobbying with the political elite to convince them about the desirability of introducing Islamic banking in India.

Our deliberations over the issues have been graced by the Prime Minister, Finance Minister, Home Minister and eight to ten ministers of the Union Cabinet, besides Chief Ministers of Delhi state and other states at a time. At one of these conferences, the Prime Minister met Arab delegates and also invited them for a longer talk over tea to his residence in the evening.

After all these years of struggle and relentless toil, the Governor of Reserve Bank of India, announced late last week that he had formally written to the Government of India to restructure or amend the laws to allow Islamic banking in India.

He said: “Islamic banking is allowed in many parts of the world, but the Banking Regulation Act of India does not conform to Islamic banking because it allows banks to borrow from and deposit money with the RBI on interest. But we are in correspondence with the government on how our laws can be restructured or amended so that they are in conformity with Islamic banking”.

As far as the change in the law is concerned, I have met Mr Salman Khurshid, India’s Law Minister, several times in last few weeks to impress upon him the need to initiate the necessary measures. He has written to the Planning Commission of India and RBI as well as consulted with the top level of the federal government on the issue. Being among the four most powerful ministers in the cabinet of federal government, he has assured me of help, and has worked on that assurance.

The political establishment is today convinced that Islamic banking will allow inflow of billions of dollars into India and strengthen it. This will also help the country’s struggle to create a non-exploitative and equitable financial system in India.

God must be thanked and the struggle continued. It is a long story headed for a happy end.

For more details about Islamic Banking: http://www.iosworld.org/Islamic_banking.php