Islamic Banking Is the Need of the Hour: Experts
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Even as RBI and government aren't keen on allowing Islamic banking, experts from the world of Islamic finances today said it is a question of "how soon and not whether it will be allowed", as this mode of banking can greatly help a fund-starved country get long-term finances.

"It is not when, but how soon, the Reserve Bank and the government will take a positive view on this highly effective financing option," T Balakrishnan, the brain behind the country's first proper Shariah-compliant financial services firm Al Barakah Financial Services, promoted by the Kerala government, told PTI on the sidelines of a meet on Islamic banking organised by the Indo-Arab chamber of Commerce and Industries here today.

Balakrishnan, who just retired as the additional chief secretary of Kerala in-charge of industries and commerce, said the Kerala State Industrial Development Corporation-promoted Al Barakah Financial Services, which was refused permission by the RBI early this year to start NBFC operations, is still hopeful of getting the regulatory nod.

Islamic banking prohibits charging interest from idle deposits, but allows investment in productive projects/ business and the resultant profit-sharing.

Pointing out that 75 per cent of the bank deposits in Kerala is held by the state's Muslim population, which constitute 25 per cent of population, he said, if Al Barakah Financial Services, in which, the state holds 11 per cent equity, or any other organized player is allowed to operate, they can easily channel billions of rupees to build infrastructure in the state. But he added none of these depositors draw interest from their banks, as it is prohibited under their faith.

Currently, Islamic banks across the globe manage an asset base of over USD 1 trillion (as of 2010), which is projected to reach USD 2.8 trillion by the turn of 2015.

Addressing the summit, Rajya Sabha deputy chairman R Rahman Khan blamed the bureaucracy for their myopic approach to developmental issues.

"The problem is that our bureaucracy is not open to change and look for newer ideas. So is the case with the officials at the central bank. If they open their eyes and look at the Arab world and their finances, they will find that their banking model is many times better and more stable than interest-driven banking system that we have," Khan said.

Shariq Nisar, a director at TASIS that advices Shariah-complaint companies in their investment areas, said, "It is not that there is no Islamic banking being practiced in the country now. There are aplenty, but all in an unorganised manner. What we need is a formal approval from regulators, so that large players can enter and tap this huge untapped money for productive purposes."

Pointing out that already Islamic fund houses like Gulf Finance House, have invested over USD1 billion in the country's infra sector like roads, ports, railways, airports, which are all Shariah-compliant, a partner at law firm Clasis Law Ishtar Ali said the Naiad Toll Bridge was partly funded by Islamic finances.

"But companies cannot come and invest in more such projects because our banking rules don't allow them to do so," he said.

Balakrishnan said, Al Barakah Financial Services will again move the RBI for approval and expressed the hope that it will come by going by the 30 per cent (or USD 300 billion) funding gap envisaged by the Centre for its USD 1 trillion infra push in the next Plan period.

He also drew his optimism from the recent statement by the Prime Minister that it is high time the country looked at the Malaysian model of infra funding.

The Southeast Asian tiger economy heavily depended on Islamic funds for its infra expansion. So are China, the US, Britain, Germany, France and many other non-Arab, non-Muslim nations, Balakrishnan said, adding Islamic banking is thriving in as many as 75 countries today.
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Daily Mail

Dec 18, 2011
01:24 PM

Ahmed >> Venkatesh, Money in Islamic Banking doesn't lose value

This should be considered the MOST ABSURD STATEMENT MADE BY ANYONE IN 2011.

Money is Money. Money has no religion. If you are in India, you use Rupee. I use Rupee. Religion does not matter. Just because your money is invested in a Islamic Bank, it wont lose value. Money loses value because, money supply is continuously expanded by governments which always spend more than what they earn.

So the concept of interest in bank FDs is nothing but compensation for inflation. Also there is something called time value of money. You have Rs 100, you can spend it now. YOu instead put in a PPF for 15 years and after 15 years you take it back. You have thus deferred your spending by 15 years and interest is part compensation for your sacrifice in delaying your urge to spend.

In a secular country like ours, there is absolutely no way RBI can permit  religion based banking. However, as a secular country, Muslims can definitely consider investment avenues that do not involve payment of interest . How? The good thing is India has other ways to invest money. Muslims can invest in equity markets , in mutual funds, in gold, real estate, all of which are not involving payment of interest . So why is this useless debate on islamic banking?

Anwaar >> Islam only requires that usurious or exorbitant interest should not be charged,

Nothing stops muslims from investing in stock market or real estate or gold, atleast in India. So whole debate is plain waste of time and only aimed at vote bank politics.

Ramki, Delhi
Nov 28, 2011
01:40 AM

>> "Islamic banking prohibits charging interest from idle deposits, but allows investment in productive projects/ business and the resultant profit-sharing."

There is no such thing as an idle deposit. The bank is going to use the money one way or another. The choice is upto the investor. He may choose low risk/low interest investment, or higher risk/profit-sharing investment.  Using labels such as "Islamic Banking" will only further segregate Muslims. A bank can offer additional products if it sees a demand for such new products. A greater range of products would increase the business of the bank.

Islam only requires that usurious or exorbitant interest  should not be charged, but if some Muslims believe that any  interst is illegal they can deposit their money in one of the newer products.

Anwaar, Dallas
Nov 28, 2011
01:04 AM

 Venkatesh, Money in Islamic Banking doesn't lose value. It grows with the investments, the only downside is if you are a bank, you share a percentage of profit or loss with the investor instead of a fixed amount.

Ahmed, London
Nov 27, 2011
04:07 PM

 IT IS SILLY. Money loses value with time and if no interest is given then it has less value than what it was previously. a simple example is -  if Rs 100 bought 1 kilo of oranges last year and it cost Rs 110 this year than if no interest was given you buy less for the same amount/.

it works if people have hoardes of money and dont mind the devaluation of currency. to apply it to all circumstances is just foolish. 

venkatesh, united kingdom
Nov 27, 2011
02:54 PM

If a creative solution can be found to overcome the religious injunction against usury, we should be equally flexible in finding ways to accept it.

ashok lal, mumbai
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