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Sunday, 7 February 2016

Islamic Banking in Kashmir

Islamic finance for all: There are three different perspectives to look at the idea of Sharia’h-compliant banking & finance. One is religious, which is where it has come from i.e. Quran & Sunnah;  the second is purely from the Economics point of view, wherein people express their interest in it only because they see it as a viable alternative to the current financial system. However, being Muslims as well as responsible global citizens, we should actually be concerned with both the reasons; hence go with the third perspective of having both the reasons. At the time, when Islamophobes are at their best to reduce Islam to an obsolete 6th century Arab doctrine, what better response could be to it other than offering to them a recession-proof & just economic system, which shall ensure their financial stability and that of their children. It must be noted that Islam does not restrict this system only to the Muslims but it’s open to Non-Muslims as well. It is with the same spirit that we have come up with ‘Islamic Banking Kashmir’ (IBK), which is a Research, Advocacy & Awareness group, based in J&K. However, before anyone talks about its advocacy or its benefits, the general public has a right to know the legal hurdles in the way of its implementation.
Regulatory impediments for us: The banking industry in India is currently governed by The Banking Regulation (BR) Act 1949, The RBI Act 1934, The Cooperative Societies Act & The Negotiable Instruments Act 1961. Certain sections of the said acts are in contradiction with the foundational theory of Islamic banking. Examples: The section 21 of the BR Act necessitates the interest on Deposits. The idea of ‘Profit & Loss Sharing investments’ is clearly prohibited by its sections 5(b) and 5(c). And the section 8 of the BR Act disallows any bank to directly or indirectly buy, sell or barter goods, which closes the door for Islamic bank’s concept of Murabaha in which banks enter Sale & purchase agreements (Edgeverve).  There are three ways to introduce Islamic banking/finance: One is a Stand-alone Islamic bank, second is to open a Special window for Interest Free banking within a Conventional bank & the 3rd is to go for a Non-Banking Finance Corporation (NBFC). Since an NBFC does not fall under the jurisdiction of BR Act, it remains a possibility in Kashmir even this time, on the lines of Cheramaan group in Kerala. The 2nd option of ‘Special window’ has recently been recommended by a high level RBI committee headed by Mr. Deepak Mohanty. The committee had sought suggestions from the concerned entities and we at IBK wrote to the Principal Chief General Manager, Reserve Bank of India, Financial Inclusion and Development Department, Mumbai& gave our suggestions. Within few days we shall also write to the Finance Ministry of India and the RBI governor. The 1st option of a stand-alone Islamic bank seems to be a little far, at the moment.
  Why Islamic banking? Coming back to the various perspectives and motivations to seek this alternative form of finance, let’s delve into them a bit. As far as the argument of freedom of religion goes,  Riba’(Usury/Interest) is the only sin in Islam, wherein such an individual has been declared to be at war with God, categorizing it as an uncompromisable tenet of Islam. The Economics argument can be proven by the fact that Not a single Islamic financial institution has had to be bailed out with tax payer’s money, even during the 2008 sub-prime mortgage crisis (This is not to say that all the financial institutions who claim to be Islamic are really so, but even such opportunists who only want to tap Muslim market use some Islamic contracts, which saved them too). The reason being that no transaction takes place in an Islamic bank, unless it is backed by an asset. Such a principle does not let the industry create the currency out of thin air to lend that & charge interest from the poor individuals at the micro level or countries at the macro level, who crumble under the debt-bubble, which eventually bursts. The money gets concentrated within few people, which makes them richer and the interest payments make majority of the people poorer, hence the disparity. This is no less than a slaughter. This is the channel through which the financial institutions like the IMF, The World Bank or WTO get to control the resources of poor nations, when they fail to pay back debt. Islamic economics believes in risk-sharing & not the financial engineering of risk-transfer, in which only one party takes the risk and the other fats his belly & earns interest doing nothing for it. It’s very simple to understand that anybody who bequeaths wealth will always get wealthier without having to work for it, while the one who is born poor will always get poorer by paying that interest for the loan, which his earlier generation had got, by his sweat & blood. Moreover, our unemployed youngsters who want to start business ventures can benefit from Mudaraba, in which both the bank as well as the applicant will use their resources and expertise to make the applicant’s initiative profitable, as both shall have a stake in its success unlike the current system which is only concerned with the interest they earn on their disbursed loan amount and sealing the mortgage of the applicant, if the start-up fails. However, It resembles Venture Capital financing but here the investment is restricted only to the permissible sectors and it does not invest in the companies which having a zero conventional debt capital structure.  So, it actually fuses economic viability with Islamic permissibility, rendering it a reliable option.  


Conclusion: This is a vast field which can not be summed up in a column. We may still have numerous questions unanswered. However, the time has come for it and we need to help each other to seek knowledge and then seek permission from the concerned authorities, so that those amongst us who prefer it, shall have an option and they don’t find the current financial system at loggerheads with their faith or their freedom of choice. I look forward to your support.

(Greater Kashmir / 05 Febuary 2016)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

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