JEDDAH: Islamic finance, which is based on profit and risk sharing, has gained tremendous popularity worldwide, especially in the aftermath of the global financial crisis. Apart from Muslim countries, major secular states such as Britain, the United States, Singapore and Japan have introduced the system.
The interest-free banking system is ideal for India. “India should introduce Islamic finance as quickly as possible, especially in order to attract funds from Gulf countries for its development projects. It should not miss the train,” said H. Abdur Raqeeb, convener of the National Committee on Islamic Banking and general secretary of Indian Center for Islamic Finance.
Speaking to Arab News, he said Prime Minister Manmohan Singh, former Finance Minister P. Chidambaram and economists such as Raghuram Rajan, economic adviser to Singh, and R. Seetharaman, CEO of Doha Bank, and politicians like Amar Singh of Samajwadi Party have spoken highly about Islamic finance.
“I have learned from informed sources that even the think tanks of the BJP-led NDA alliance accepted Islamic banking while ruling the country and wanted to recommend its introduction,” said Raqeeb.
He called upon the Reserve Bank of India (RBI) to take immediate steps to accommodate interest-free Islamic banking, following in the footsteps of financial authorities in Britain, Singapore and Japan. “This will not only facilitate the inflow of huge finance and sovereign funds from GCC (Gulf Cooperation Council) countries for our infrastructure projects but also help the minorities and the marginalized to actively participate in the economy with micro-finance based on equity,” Raqeeb said.
He hoped the new UPA government of Prime Minister Singh would introduce the system, not only to boost the country’s economy but also to improve the economic conditions of Muslims, the most disadvantaged community in financial sector, according to the Sachar Committee report.
“India requires $500 billion for new expansion projects in vital sectors in the next 10 years. “From where we’ll get this money. IMF (International Monetary Fund) and World Bank are unable to support us today because they don’t have the liquidity. Huge funds are available only in the Gulf and they could be tapped through Islamic finance,” he said. Raqeeb said many investors in the Gulf had withdrawn their funds from Western countries in the wake of 9/11 events and were looking to east for investment opportunities, especially in India and China.
“Our government should make use of this golden opportunity,” he added.
Asked about the recent comment made by Muhammad Al-Jasser, governor of Saudi Arabian Monetary Agency (SAMA), that Islamic finance can compete with other products on global markets on its own merits without faith-based support, Raqeeb said it shows its wide acceptance, cutting across faiths.
“Achieving 15 to 20 percent growth is extraordinary. A nascent industry making constant growth giving returns is something fantastic,” he said. Total assets of Islamic banks and financial institutions are estimated at $1 trillion.
Islamic banking and finance are not meant for Muslims alone. “This is a misconception,” said Raqeeb. “About 40 percent of investors and 60 percent of borrowers in Islamic banks of Malaysia are non-Muslims. One in every five applicants for some Islamic products of the Islamic Bank of Britain is non-Muslim,” he pointed out. Pope Benedict XVI recently urged Western banks to adopt Islamic banking principles as a solution to global financial crisis.
One of the key instruments in the Islamic banking called Sukuk is considered a solution to the subprime crisis that triggered the global economic downturn. While subprime crisis resulted in $400 billion losses to conventional banks, Islamic banks practicing Sukuk have come virtually unscathed from the crisis.
Reghuram Rajan, chairman of the Financial Sector Reforms Committee and the youngest Indian to become the chief economic adviser to IMF, has recommended the introduction of interest-free finance.
“The non-availability of interest-free banking products results in some Indians, including those in the economically disadvantaged strata of society, not being able to access banking products and services due to reasons of faith,” the committee and advised the government to take measures for the delivery of interest-free finance on a large-scale, including through the banking system. “Bombay or Kochi can become gateways to Islamic banking and finance in the near future,” Raqeeb concluded.
