Looking towards west

 

 

Shariq Nisar

CEO, Bearys Amanah

Investments (P) Ltd.

If we appraise India’s economic and financial programs during recent years, we will reach the conclusion that its response to recent financial innovations has been no more than lukewarm. Of course, the Indian system may have its own style of functioning; but in some cases when you don’t act fast you tend to lose faster. Here, the issue in question is about allowing Islamic finance in the country. India is still discussing the merits of the case when the whole world, from Australia to the US and from Russia to South Africa, has made special changes to accommodate it. This has helped them attract foreign investment from various capital-surplus economies besides helping them increase mobilisation of financial resources from within the country. India is losing out on both counts. Within the country, it is a well-known fact that Muslims do not like keeping their money in banks. If they do bank them, then they do not take the interest. According to the census more than 60% of the Muslim population is below 25 years of age and it is growing at a rate faster than that for any other community. With growing financial liberalisation and investment opportunities, we have to give Muslims an opportunity to save their money in the manner they consider appropriate. When I discuss the issue of allowing Islamic finance with officials in the industry, commonly certain major objections are raised. Let’s see what the objections are:

1. India is a secular country; therefore it simply cannot allow any kind of religious financial system.

2. Allowing Islamic finance may be tantamount to inviting terror finance into the country.

3. The regulator will have to cede its regulatory power to the Sharia Board.

I will take up all these objections one by one. Before that, however, a few preliminary words about Islamic finance itself will be in order. What is Islamic finance? Islamic finance derives its values from the religion of Islam. In the realm of worldly transactions, Islam adopts a normative approach thus abhorring certain business practices due to their being detrimental to society. The first and foremost among these is the prohibition of Riba (interest). Suffice to say that it has been proven beyond doubt that an economy can efficiently function without the interest mechanism. Then comes the prohibition of Gharar (unfettered speculation). Gharar also implies that the rights and obligations of the contracting parties are not clearly specified. The third important prohibition is Maysir (gambling). Similarly, certain businesses like alcohol, tobacco, prostitution, armaments etc. are also prohibited. All these prohibitions are not the copyright of Islam. These have been core values of society even prior to Islam and will remain so forever. With this, we will come to the three basic arguments proposed against allowing Islamic finance.

Secularism and Islamic Finance

This argument is often advanced by the bureaucracy. Theoretically speaking, India acquired its secular values from its colonial master, i.e. the UK. Interestingly, UK is among the countries most active in promoting Islamic financial practices. Practically, it has been proven by none other than IMF and World Bank researches that Islamic finance is more stable, efficient and growth oriented.

Islamic Finance and Terrorism

This argument is like claiming that allowing a bearded man into the country amounts to opening our doors to terrorists. Do terrorists always look like bearded maulanas? Do they really need an Islamic financing institution in India to finance their operations? Reports prove that till now most of the terror financing has been funnelled through conventional financial channels. How many institutions have we closed because of that? Has the 9/11 operation, or any other terrorist incident for that matter, been linked to any Islamic bank? Then why blame Islamic finance? Supremacy of Sharia Board over the Regulator

This argument is like saying that allowing a lawyer is akin to curtailing the supremacy of the judiciary. Is it so? In the UK, for instance, in all cases of dispute pertaining to Islamic financial institutions, it is the English law that has precedence over the Sharia law. Then is it not reasonable to believe that this will be the case in India too.