DOHA: Aiming to mobilise resources from the GCC states for the proposed mega infrastructure projects, there is a “very strong possibility” of India taking positive steps to amend the country’s banking regulatory laws to introduce the Islamic banking system in a full-fledged manner, before the upcoming parliamentary elections in 2014, said an expert yesterday.
The existing Banking Regulation Act (1949) of India hinders the establishment of Islamic banking as it does not allow banks to operate on a profit-loss basis and forbids murabaha, or, the buying, selling, or barter of goods.
“I strongly believe India soon will take some positive steps, either to amend the laws of the Reserve Bank of India (the country’s central bank) or promulgate ordinance to make way forward to establish Islamic banking system by 2014,” said Dr Manzoor Alam, President of Indo-Arab Economic Cooperation Forum, and also an expert of Islamic banking.
Recently the RBI permitted the Kerala government (a state in south India) to go-ahead to launch a Non-banking Financial Institution (NBFI) based-on the principles of Islamic finance.
Dr Alam, who has been striving for over two decades to introduce interest-free banking system in the country, advocated that participatory banking is the need of the hour to facilitate foreign investments to generate resources, especially at a time when the government has approved many ambitious programmes, including Food Security Bill and mega infrastructure projects, which alone will cost the exchequer over $50bn.
“I see a political will in the present government. A couple of years ago, Prime Minister Manmohan Singh announced in Malaysia at an international conference on Islamic banking to form a committee to conduct a feasibility study in this regard, and subsequently, the committee made positive recommendations. However, there is tremendous pressure on the government from different quarters including right wing political parties, particularly Bharatiya Janata Party (BJP) to prevent introducing a system which will not only help the Muslims, but the whole nation,” he said.
Many think that unless and until full-fledged Islamic banks are permitted in India, an Islamic finance sector will find it hard to develop.
However, some analysts suggest that the RBI’s recent decision with regards to the Kerela government reflects a significant and positive change in its attitude towards Shariah-based NBFIs.
Some politicians and private organisations have been making efforts for years to start Islamic banking in India, but they have faced strong opposition from bureaucrats and conventional banking circles. Established in early 1970s over 50 countries have adopted the system of interest-free banking across the globe.
“The global market capitalisation of interest-free banking is expected reach over $1.6 trillion by the end of 2013. And the world’s leading economies such as Japan, the UK and the USA have already allowed the system and becoming increasingly popular in other advanced countries. But in India, there is still some misnomer or misunderstanding that it will help Islamisation of the country,” added Dr Alam.
Dr Alam also suggested that there is an urgent need to establish a global regulatory framework, similar to the Basel-based Bank of International Settlements (BIS), to make the Shariah-compliant banking more popular and sustainable.
(The Peninsula / 24 Sept 2013)
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com