What is in a name?
Prime Minister Manmohan Singh on Wednesday said that he would ask RBI to take a look at the demand for establishing Islamic banking in India .He was responding to a query on the subject at a press conference he addressed along with Malaysian Prime Minister Najib Razak. He said the pressure was mounting on the RBI for such an establishment.The statement is significant as it comes in the backdrop of the RBI governor D Subbarao’s statement that Islamic banking cannot be allowed within the current rules of the RBI. “With the present set Banking Regulation Act, Islamic banking just cannot take place as many of the banking principles in place are based on interest payments. However, Islamic banking is possible through a separate legislation,” He said.
It must be recalled that the Kerala High Court had recently asked Kerala’s CPM controlled state government to keep away from a new company that was registered under the Sharia laws of banking. Former Union Minister Subramaniam Swamy had petitioned the court against the Kerala State Industrial Development Corporation taking the lead to start an Islamic bank with private players ( Mostly NRI businessmen). Some leading NRI investors had approached Minister Elamarom Kareem who quickly agreed to the proposal and soon KSIDC came out with the investment offer. The bank would not pay any interest to customers, but only “ profit”, while a Sharia board would decide what sort of investments it would make..
In his PIL, Mr Swamy had said that public money was being appropriated for favouring a particular religion in a secular country, as KSIDC, an arm of the state, offered to take 11% stake in the bank.
A section of “liberal” opinion within the country is backing the idea. Jurists like VR Krishna Iyer are of the view that Islamic banking, that prohibits levying of interest, are humanistic in nature. ( He often swims against the current) M D Nalappat ( Madhavikkutty turned Kamala Suraiya’s son) wrote an article supporting Islamic Banking during the International Seminar on Islamic Banking. http://www.isifk.com/mdnalappa/
Islamic finance is based on the generation of assets which are structured to be Islamic law or Sharia-compliant. The sharia bans usury or the charging of interest ( riba) on money lent to others. The issue then is to find alternative routes to ensuring a margin between the cost of funds and the return they earn to cover intermediation costs and make a profit.Whatever, methods to generate profits are indirectly methods to circumvent Sharia laws. It is against Islam to take "interest", but can accept "profit" from investment.
Having said this, one must also remember that the world’s leading financial hubs all have Islamic Banking Centres. London, Zurich and New York are the leading Islamic Banking centres, but the major fund holders are Iran and Saudi Arabia. The Islamic banking market continues to flourish around the world with current estimates suggesting that assets managed by Islamic banks are in excess of $700 billion (predominately concentrated in the Middle East) and expected to cross a trillion by 2013. It is likely that if India opens up Islamic Banking, funds would flow in, considering the fact that we have ideal investment conditions and a large Muslim population.
A curious project is said to have been undertaken in England, that is the establishmen of a " Roman Catholic Bank".The name of the bank would be "Anglo Universal Bank" and the aim would be "protection and developementof Catholic Banking interests through out the world"!
Other religions are likely to follow the suit.
There is apprehension among many Indians on the prospects of Islamic Banking. There are fears that it would further ignite the ongoing religious issues, and that funds could be diverted to religious establishments for anti national interests. Islamic Banks will be governed by Sharia Councils,and not the government.
It is time that our policy makers think seriously about matters of national interest before blabbering in public. Singh obviously has some difficulty to speak and walks around like a mechanised robot, and when he speaks, sounds as if Sonia Ji is speaking.
|Illustration by: DinarStandard.com|