RBI & ISLAMIC BANKING The Reserve Bank of India (RBI) had made it clear that it could not allow interest free banking in India, had “suggested to look at another vehicle within the federal law in India,” Dr Mohamed Saeed Shingeri told The Malaysian Reserve. While this might be a blow for attempts by Islamic banking actors to get the system recognized in nation with more than a billion people, including a huge number of Muslims, but the tide does seems to be turning. Since RBI is the platform for interest-bearing banking, interest free banking system could be sought under the Society Act and not under the nation’s Banking Act, Shingeri said. An official from Indian Centre for Islamic Finance, an NGO campaigning for Islamic banking and finance, pointed out that Shariah compliant finance could be introduced to a limited extent through alternative investment funds and mutual funds that falls under the Securities and Exchange Board of India (SEBI). “However, once the Micro Finance Bill is enacted, all the micro finance activities will come under RBI and problems will surface again. Issuing of Islamic bonds, sukuk, may be made possible, though, with minor changes in the rules without making major changes in the laws,” said the centre’s general secretary H Abdur Raqeeb. Allowing shariah compliant tools in India would open up the market for foreign investors, including Malaysian buyers, who may be interested to participate in India’s interest free institutions. R I Narayan, a former Indian high commissioner to Malaysia, stated last year that Islamic banking may attract more funds to India especially in the infrastructure field where Indian intend to spend US$1 trillion over the next five years in road building, railways, aviation and energy. Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz indicated last year that Malaysian Islamic banks needed to expand further, either by taking up stakes in existing partnerships or alliances. Abdur Raqeeb urged Malaysian investors to invest heavily in India’s booming infrastructure revamp exercise, saying their massive presence in the country in various projects will help Malaysia penetrate the Islamic Finance sector in the future. He said there seems to be a change in understanding the need for Islamic banking at the RBI, which stated to the local press in India recently that they were not averse to Islamic banking and finance and could seek changes required for shariah compliant banking. “Islamic bonds (sukuk) is fast growing as a most acceptable product for funding infra projects. Islamic Banking will provide an alternative as it is socially responsible and stands for inclusive growth,” he told The Malaysian Reserve. In November 2012, RBI Governor D Subbarao was reported as saying that ‘other options’ may be considered to bring Muslims into the banking system. The Raghuram Rajan Committee Report in 2008 mentioned the need for the introduction of interest free banking, stating that India would benefit largely since it would tap into billions of dollars from both local and foreign savings markets. Another report in the same year by the Credit Rating and Information Services India Ltd stated Islamic banking would not only work for Muslims but would also assist the people in India’s unorganised labour sector. The RBI earlier this year revoked the operating license of the only interest free banking unit in the country which was operated by Alternative Investments and Credits Ltd. “There are heavy challenges faced in these efforts to operate interest free banking system, but Taqwa Finance will try to seek reforms for Islamic banking with non-banking financial companies,” said Shingeri. The Taqwa Finance House was running interest free banking in 2002 but was forced to close down in 2004 under RBI directives. Shingeri is trying to revive the finance house. “Under Taqwa Fiance, I plan to tap Islamic funds under share capital and through sukuk al Ijarah (based on debenture) under the company law in India,” he said. A gleam of hope appeared when India’s first Shariah compliant Chit Fund was launched by the Zayd Chit Fund Pvt Ltd this year, according to finance executives in India.
Posted on: Sun, 17 Nov 2013 13:45:04 +0000
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