Interest-Free Banking Ideal For India

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 said said H. Abdur Raqeeb, convener of the National Committee on Islamic Banking and general secretary of Indian Center for Islamic Finance.He said "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,"

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.

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.

"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.