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Sunday, 28 October 2012

Islamic banking gains traction in India

New Delhi: The rising demand to allow Islamic banking in the country has led the Reserve Bank of India (RBI) to request the government to tweak existing banking laws. Once that happens, it is likely to fetch India billions of dollars in investments from countries in the Middle East.
RBI Governor D Subbarao said: “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.”
Islamic banking is an interest free system that is allowed in many developed economies, including European markets like France, Germany and the UK.
The subject, whether India should allow Islamic banking, has been discussed at several national and international forums. But the long-standing debate took a twist recently when the National Commission for Minorities (NCM) stepped into the picture. A constitutional body, headed by the former Information Commissioner of India, Wajahat Habibullah, met officials of the finance ministry with expectations to open the doors for interest-free banking.
Habibullah said, “The conventional form of banking is not stable as is evident from the collapse of the banking systems across the world. Implementation of interest-free model will provide that stability. And also help the country to channelise more funds from the Muslim business community abroad.”
In the latest development, Law Minister Salman Khurshid announced that he had written to the Planning Commission and the RBI on the issue.
The idea is reverberating all around and the need and relevance of Islamic banking in the post-economic meltdown era is being felt ever so strongly.
In 2009, after the financial tsunami hit the West, Executive Chairman of the World Economic Forum, Klaus Schwabb, had declared, “Today we have reached a tipping point, which leaves us with only one choice — change or face continued decline and misery.”
The change envisaged by Schwabb was the introduction of an alternative banking system based on equity, justice and fair play instead of debt financing.
A market analyst says, “The current jittery state of the world’s lending markets is making the task of funding harder. The issue is felt not only in the West, but is particularly pertinent to Asia.
“The struggle is evident seeing the efforts being made to keep up with escalating prices of commodities as well as the surging population. And the answer lies in finding alternatives to conventional methods of financing.”
Incidentally, The Economist magazine in its recent report also pointed out that the emerging markets in Asia (namely, China and India) would generate around two-thirds of the world’s economic growth in the next five years. This meant that by 2015 emerging markets were being projected to account for 41 per cent of global GDP compared to an estimated 31 per cent in 2011.
The analyst said, “While both China and India are the focus of the GCC countries, India has an edge due to its close proximity to the region, as more than 6 million Indians are presently serving in the Gulf countries. And it would do well for us to explore prospects and open up to Islamic banking.”
Sharing the sentiments, Prof R Vaidyanathan of the Indian Institute of Management, Bangalore commented that the farmers, landless labours and self-employed and unorganised sector were all bereft of any kind of financial benefit.
Emphasising on the “inclusive growth” of the entire population, Vaidyanathan said: “Even after 40 years of nationalisation of banks, 60 per cent people do not have access to formal banking services. And only 5.2 per cent villages have bank branches.”
The state of affairs has compelled many economists to suggest that Islamic banking, which propagates zero interest lending, could hold the key to solving the crisis and provide solution to the farmers’ suicides.
Even the doyen of the Indian judiciary, V R Krishna Iyer had said during an international conference on Islamic Finance, “The system has proven successful in poverty alleviation and sustainable growth in many countries. It is very relevant in India, where 20 million people are starving.”
The success of Islamic banking, which is expected to reach $2.7 trillion by 2015, has inspired many in the conventional banking industry. At its core it is a system that follows stringent set of principles. It aims to be socially and ethically responsible and embraces high transparency and shared risk. The matter of concern is — how long India will continue to ignore it?
(Gulfnews.Com / 28 Oct 2012)

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Sukuk issues by GCC governments hit record levels

MANAMA: Sukuk issuances by GCC governments have reached record levels this year, on the back of positive regional economic developments.
Sound liquidity in regional financial systems, a strong local appetite for debt as well as accommodative worldwide monetary policies, is responsible for the trend, according to a report by credit ratings agency Standard & Poor's.
"As access to capital markets widened, several corporate issuers in the region were able to successfully refinance large amounts of debt falling due, notably by tapping the sukuk market," said credit analyst Tommy Trask.
"We also expect the project finance sector, including real estate and transport projects, to increasingly rely on sukuk issuance to fund transactions," said analyst Karim Nassif.
Overall, rising oil prices have led Standard & Poor's Ratings Services' economists to revise their gross domestic product growth forecast for the GCC for this year to five per cent from 4pc previously, and created a fertile environment for credit growth, particularly in the Gulf's oil-exporting economies.
(Gulf Daily News / 28 Oct 2012)

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UAE: ADIB puts Islamic finance on the global ethical business agenda

Abu Dhabi Islamic Bank (ADIB), a top-tier Islamic financial institution, made the case for the viability of Islamic finance as an ethical and sustainable business model in the global financial landscape.

Hosted at the inaugural episode of 'Faith in Finance', a new six-part series launched by Bloomberg TV and exclusively sponsored by ADIB, Tirad Al Mahmoud, CEO, Abu Dhabi Islamic Bank depicted a positive outlook for Shari'a-compliant banking as a viable, resilient and ethical business model.

"There is enormous demand for ethical banking all over the world especially in the aftermath of the global financial crisis. Global consumers do not want any more to lose their savings and sometimes even their pensions. They want a bank that speaks their own language, a bank they can trust to manage their wealth in a fair and transparent way with no hidden charges. As a Shari'a-inspired bank, these consumer basic requirements lie at the heart of our value proposition," Tirad Al Mahmoud told 'Faith in Finance' Series.

"Shari'a-inspired finance has brought discipline and high-ethical standards to banking. We make money in a way that is transparent and far from being excessive. We don't have penalty banking. We don't make money on a client who he is late to pay or has lost his job and can't pay. We make money when the client is able to perform and honor his contracts," Tirad explained.

"We believe that banks inspired by an ethical business model such ours will eventually be more profitable to shareholders and investors in the medium and long terms. Equally important, what is unique about our value proposition is that it promises consistency of performance to investors, depositors and clients. In sum, it is a stable and predictable business model," Tirad added.

"We are seeing more and more a convergence of business models. Conventional banks are being asked by the regulators to take much less risk than they used to do in the past and become more transparent and compliant. Interestingly, prudential risk management, transparency, compliance and ethics are key pillars of our value proposition, which happen to be universal values," Tirad said.

"We don't have a monopoly over these values but we see a real value to promote them in the best interest of the banking industry all over the world," Tirad concluded.

ADIB has recently joined hands with Bloomberg TV to launch 'Faith in Finance' series which will help raise awareness of Islamic banking among a wider global audience. This partnership comes as part of ADIB's strategy to enhance awareness about Islamic banking, a role the bank is proud to play. ADIB is a top-tier Islamic financial services group and is leading the debate on Islamic banking, an industry that is rapidly shifting from a niche into a mainstream business in many markets.

(Ameinfo.Com / 28 Oct 2012)

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