Minority affairs minister K. Rahman Khan (left) and RBI Governor D. Subbarao.
With as many as nine states going to polls this year, and the biggest electoral battle of them all, the Lok Sabha election , to follow suit, the UPA government is working overtime to woo the Muslims. Over 15 crore community members will soon be able to avail the benefits of “interest-free” Islamic banking institutions without coming in conflict with their religious code.
Senior banking officials confirmed to Mail Today that the Ministry of Minority Affairs and the Reserve Bank of India are working out modalities for “establishing Islamic banking institutions to benefit the community without tinkering with the Islamic code of belief on banking”.
Earning or paying interest on a financial saving is prohibited in Islam. However, faced with a situation where Rs.5,000 crore are lying idle in nationalised banks without earning any interest on it as it has been deposited by the community members, who control assets worth US $1.5 trillion in the country (in Kerala alone, it is pegged at above Rs.40,000 crore, according to a 2005 estimate), there is a feeling growing among the Muslims to explore “vehicles of financial instruments which can facilitate interest-free financial products, including loans, for the community’s benefits”.
It is learnt that a recent exchange of letters between minority affairs minister K. Rehman Khan and RBI Governor D. Subbarao in December has given a new push to the issue, hanging fire for want of requisite changes in the existing banking laws. The RBI has been insisting that to make it possible, an amendment is required in the Banking Companies Regulation Act, 1949. This was conveyed to the finance ministry recently after Khan raised the issue with the RBI governor through a letter, dated December 5, 2012. The RBI chairman wrote his reply on December 14.
A senior official said: “Khan asked the RBI to first introduce some financial instruments as a pilot and the first step forward to avoid the situation where an amendment is required in the Banking Regulations Act. He also said, for this purpose, a committee can be constituted by the RBI or the minority affairs ministry to examine the possibility of such financial vehicles through which interest-free banking can be introduced in the country to benefit the Muslim.”
Khan is learnt to have cited that due to the Islamic belief on interest, “a large number of Indian Muslims are deprived of investing their savings in an organised sector and availing the financial resources for their own economic benefit”.
Thousands of crores in interest is kept in suspended accounts as believers of Islam do not claim it.
Thousands of crores earned in interest is kept in suspended accounts as believers of Islam do not claim it. The assets controlled by Muslims are estimated to be US $1.5 trillion and is growing at 15-20 per cent. The money is lying idle, which if invested in profit-sharing basis and utilised judiciously, can have a major impact on the Indian economy.
Khan wrote further: “I have been receiving several representations from the community and it is appropriate time to facilitate the Muslims with a financial system, where they can deposit their saving in accordance with their faith.” Islamic banking is prevalent in countries like Hong Kong, UK, US, Malaysia and Singapore.