The Indian Centre for Islamic Finance (ICIF) has made out a strong case before Prime Minister’s Economic Advisory Council member V. S. Vyas for introducing interest-free banking in the country at the earliest to ensure “inclusive growth with innovation” in accordance with the recommendations of the Planning Commission’s Raghuram Rajan Committee.
An ICIF delegation from New Delhi, led by its general secretary H. Abdur Raqeeb, met Prof. Vyas at Yojana Bhavan here over the weekend to impress upon him the need for creating a framework to provide benefits of banking products and services to the marginalised sections of society, when “serious questions” were being raised about the utility of the micro-finance model.
Prof. Vyas, who is also deputy chairperson of the Rajasthan Planning Board, had observed at a dialogue on “Ethical issues in planning and management” here recently that Islamic economic principles for equitable distribution of wealth to the poor and the needy could provide answers to some of the challenges of modern economy.
Spurred by Prof. Vyas’ remarks that the Islamic financial system could be further explored, the ICIF delegation made a detailed presentation before him while suggesting introduction of a pilot project with the public, private and foreign banks operating in India to open an “interest-free Islamic banking window” within the existing Indian banking regulations in Mumbai for one year before deciding the future course of action.
Mr. Abdur Raqeeb pointed out that certain faiths, including Islam, prohibit use of interest-based financial instruments and perceive them as promoting usury and exploitation. Since a large number of people belonging to these communities are in the economically disadvantaged strata of society, they are unable to access banking products and benefit from the country’s economic growth.
A high-level committee on financial sector reforms under Dr. Raghuram Rajan appointed by the Planning Commission in 2008 had stated that the delivery of interest-free finance on a larger scale, including through banking system, would be “in consonance with the objectives of inclusion and growth through innovation”. Prior to this, the Reserve Bank of India constituted a working group in 2006 to examine the instruments used in Islamic banking. Mr. Abdur Raqeeb told The Hindu here that he had requested Prof. Vyas to prevail upon Prime Minister Manmohan Singh, Union Finance Ministry and RBI to accept the high-level committee’s recommendations in the wake of setbacks in the micro-finance institutions as well as the RBI’s recent efforts for funding new rural branches through a pilot project in the north-east region receiving a “serious jolt”.
Significantly, the Prime Minister had recently asked the RBI to look into the Malaysian model of Islamic banking during his visit to Kuala Lumpur. Dr. Singh had observed that he would recommend to the RBI to look at “what is happening in Malaysia in this regard” while referring to the demands for experimenting with interest-free banking.
The ICIF delegation presented to Prof. Vyas some documents on the “financial tsunami of 2008” and the Islamic perspective of why it happened as well as the remedies. Mr. Abdur Raqeeb said the Islamic finance instruments had the potential to provide satisfactory services to the daily wage earners, farmers and below poverty line families.
“Islamic finance can cater to the needs of the growing population in the cities and come up with innovative products in the sectors such as insurance, mutual fund, capital market, trading loans, real estate and small infrastructure development projects,” said the ICIF general secretary, adding that huge investment flows from Muslim countries in Middle East and East Asia were waiting for the Islamic banking doors to be opened in India.
While emphasising that financial exclusion of large segments of population was adversely affecting socio-economic and educational uplift of the masses, Mr. Abdur Raqeeb called upon Prof. Vyas to join the efforts for providing a level playing field to interest-free banking along with the conventional banking model.
The ICIF also requested Prof. Vyasto look into the Maharashtra Government’s recent pact with Bahrain-based Gulf Finance House, which will be investing 10 billion U.S. dollars over the next seven years for setting up an integrated economic development zone near Mumbai. A similar venture in Rajasthan would immensely benefit the people of the State.
A reference to the Kerala Government’s initiative for establishing an Islamic finance model, which has since been challenged by Janata Party leader Subramaniam Swamy in the High Court, was also made at the meeting.
The Kerala Government is reportedly looking at Islamic bonds as another form of venture capital to build airports, introduce high-speed trains and develop expressways in future.