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Tuesday, 30 July 2013

Islamic banking in India

Around four decades ago, banking industry started to realize the benefits of ‘Fiqh- al Muamalat’ (transaction rules) of Shariah law. It began showing steady growth right from its inception at around 15% a year. Today Islamic investments & finance institutions make the largest growing sector in this industry, with staggering 25% growth every year, notwithstanding economic-meltdown of the US & other recessions in the world economy.

Islamic banking has been adopted by more than 50 countries, including the United States & Great Britain. And it is certainly not to cater to any vote-bank, since Muslims in these countries do not constitute any sizeable enough population to be considered for political appeasement. It is purely on the basis of the fact that Islamic banking offers a solution, a recession-proof future to these countries which live on credit. However, it bewilders me to see India, the third largest Muslim populated nation in the world, with almost 200 million Muslims in it, not even indulged in any serious debate about this new trend. The Reserve bank of India's governor, D. Subbarao, recently issued a statement, ''We got to see that Islamic Banking which does not allow charging interest or taking of interest is inconsistent with our existing laws. All that I am saying is Islamic banking is not consistent with current banking laws". The reason is quite evident. Even as per him, any Islamic banking institution has to be under the purview of Shariah regulations, calling for a Shariah court to act as the regulatory authority over it. Currently, all the banking & financial institutions in India have only RBI as their regulatory authority. 

So, to conclude, for Islamic banking to be possible in India, there have to be two regulatory agencies on the same institution, ‘RBI’ for banking regulation & ‘Shariah court’ as the regulator for Islamic banking. The Governor was very clear that it is the Government which has to decide if they want to allow Islamic banking or not. So, it is not what many of my dear economists in India opine, that Islamic banking is just not possible in India. The complete truth is that it can be made possible if government agrees to allow it. India is not a theocratic country that its laws are decreed by God. If the country benefits and its Muslim citizens religious obligation is served, why can not amendments to the current law be made, the way many Western and 'not-so-Islamic' countries have done? If some fascists oppose it on the basis of its affiliation with Islam, let them call it an 'Interest-free banking'.

‘All India Muslim Personal Board’, boasts of safeguarding the religious rights of Indian Muslims, on its website. Undeniably, it has achieved some commendable milestones. The irony is that it has exhausted all its efforts to resist 'Child marriage Restraint Act' to ensure legality of such marriages. Their argument is that since there is no age- bar set up by Islam on marriage, hence country cannot set it up for them, which makes sense to me. However, what about the Interest (Riba or usury), which is unambiguously forbidden in Islam, where as per one hadith, Allah & His prophet (SAW) declare a war against such a Muslim. Why is their ante so low on it? Comparatively, this issue deserves the most attention. Clearly, more than AIMPB's resistance to 'Right of children for free education act, 2009' and their rightful opposition to Salman Rushdie's video conference to Jaipur literature festival.

At the state-level, JK bank being the leading financial institution here and catering to the only Muslim majority state in India, must realize this moral responsibility of strongly pleading for this religious right of its Muslim customers, so that they have an option to choose from. They must not just issue press statements, but connect with all those who are interested, like the Govt of Kerala & AIMPB to form a pressure group, as Governments do not do anything unless its people convey their demands, 

effectively & efficiently. This step will not just win Muslim voters for the government, if they permit it, but non-Muslims as well, since this is not just to cater to the religious rights of minority but also a chance to bail out India from precarious economic situation.

(Mehboob Makhdoomi has an M.B.A from USA & a research degree from the U.K. His book, ‘Social Marketing & Conflict Resolution: An analysis of the Kashmir situation’, is set to be released this August in Kashmir.)

(Greater Kashmir / 30 July 2013)

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Malaysia: Takaful operators to use Islamic Financial Services Act (IFSA) grace period to ensure growth

PETALING JAYA: Takaful operators like Syarikat Takaful Malaysia Bhd and Takaful Ikhlas Sdn Bhd, a unit of MNRB Holdings Bhd, are aggressively strategising their operations to ensure profitable growth and taking advantage of the five-year time frame given to composite takaful players to fully comply with the new Islamic Financial Services Act (IFSA).
Under the Financial Services Act (FSA) and IFSA, which came into force on July 1, composite insurers and takaful players would be, among others, required to split their life and general insurance businesses under separate licences.
Takaful Malaysia group managing director Datuk Mohamed Hassan Kamil told StarBiz that as takaful operators are given the five-year time frame by Bank Negara to fully meet the terms of the new Act, the company would be devising and evaluating an array of potential options to achieve more efficient solutions from the capital management and shareholder return perspectives.
“We would review and evaluate all this. Hence, it is unlikely for the changes to materialise in the current financial year. The takaful industry players have yet to digest the full breadth of the IFSA to decide what would work best for them, going forward, especially towards sustainable growth of the takaful markets. This would definitely take time, as financial institutions need to better understand the application of the IFSA,” he added.
On whether the Act would take a hit on Takaful Malaysia’s bottomline in view of the split in operations of its family (life) and general businesses, Hassan said although there would be potentially higher cost initially due to start-up costs, in the long run, it would benefit the company and consumers as a whole, as the company would be more focused in terms of strategic planning, management, cost control and enhanced customer service. The capital position too would be further strengthened, he noted.
RHB Research, in an earlier report, said that the new ruling to split the life and general insurance businesses could have a “huge impact” on insurance firms, especially takaful players like Syarikat Takaful Malaysia and Takaful Ikhlas.
It added that the impact would be felt more deeply in the takaful industry due to the higher number of composite licences issued to them compared with their conventional insurance counterparts.
Meanwhile, Takaful Ikhlas president and chief executive officer Abdul Latiff Abu Bakar said while the split timeline given to comply was within five years, the company was looking more towards compliance with the other requirements first, of which the deadline for compliance was within a year.
“We are currently at the gap/impact analysis stage. As far as business is concerned, Takaful Ikhlas would continue to focus on enhancing its family agency business, of which new investment link products were just recently launched. It is too premature to comment on the capital and profitability.
(The Star Online / 23 July 2013)

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UAE: New OBG report on Islamic finance in Abu Dhabi

The growing role Islamic finance is playing in the expansion of Abu Dhabi’s banking sector will be mapped out in a forthcoming report to be published by Oxford Business Group (OBG).

The Report: Abu Dhabi 2014 will look in detail at the new tools and measures which are becoming available on the back of rising demand for Sharia-compliant financial services.

It will also consider the contribution that major government projects are expected to make in galvanising growth across the emirate’s banking industry.

OBG, a global publishing, research and consultancy firm, has signed a memorandum of understanding (MoU) for the seventh year to collaborate with the Abu Dhabi Islamic Bank (ADIB) for its forthcoming report on the emirate.

Under the agreement, OBG will have access to the bank’s expertise and research resources which will be used to help compile the group’s coverage of Islamic financial services in the report.

OBG’s regional editor Oliver Cornock said trends noted for 2012, which included increases in liquidity and larger profits from Islamic finance, showed that while lending remained somewhat sluggish, Abu Dhabi’s banks were heading towards recovery from the financial crisis five years earlier.

“Abu Dhabi’s bid to target non-hydrocarbon segments of its economy for growth, including financial services, is gathering pace, while the setting up of public-private partnerships should provide plenty of opportunities for banks to facilitate the rolling out of new projects,” he said.

The report will be a vital guide to the many facets of the emirate, including its macroeconomics, infrastructure, banking and other sectoral developments. It will be available in print or online in the first quarter of 2014, he added.

(Trade Arabia / 30 July 2013)

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