Islamic banking is the need of the hour: Experts
"It is not when, but how soon, the Reserve Bank and the government will take a positive view on this highly effective financing option," T Balakrishnan, the brain behind the country's first proper Shariah-compliant financial services firm Al Barakah Financial Services, promoted by the Kerala government, said on the sidelines of a meet on Islamic banking organised by the Indo-Arab chamber of Commerce and Industries Sunday.
Balakrishnan, who just retired as the additional chief secretary of Kerala in-charge of industries and commerce, said the Kerala State Industrial Development Corporation-promoted Al Barakah Financial Services, which was refused permission by the RBI early this year to start NBFC operations, is still hopeful of getting the regulatory nod.
Islamic banking prohibits charging interest from idle deposits, but allows investment in productive projects/business and the resultant profit-sharing.
Pointing out that 75 percent of the bank deposits in Kerala is held by the state's Muslim population, which constitute 25 percent of population, he said, if Al Barakah Financial Services, in which, the state holds 11 percent equity, or any other organised player is allowed to operate, they can easily channel billions of rupees to build infrastructure in the state.
But he added none of these depositors draw interest from their banks, as it is prohibited under their faith.
At present, Islamic banks across the globe manage an asset base of over USD 1 trillion (as of 2010), which is projected to reach USD 2.8 trillion by the turn of 2015.
Addressing the summit, Rajya Sabha Deputy Chairman R Rahman Khan blamed the bureaucracy for their myopic approach to developmental issues.
"The problem is that our bureaucracy is not open to change and look for newer ideas. So is the case with the officials at the central bank.
"If they open their eyes and look at the Arab world and their finances, they will find that their banking model is many times better and more stable than interest-driven banking system that we have," Khan said.
Shariq Nisar, a director at TASIS that advices Shariah-compliant companies in their investment areas, said, "It is not that there is no Islamic banking being practiced in the country now. There are aplenty, but all in an unorganised manner. What we need is a formal approval from regulators, so that large players can enter and tap this huge untapped money for productive purposes."
Pointing out that already Islamic fund houses like Gulf Finance House, have invested over USD 1 billion in the country's infra sector like roads, ports, railways, airports, which are all Shariah-compliant, a partner at law firm Clasis Law Ishtar Ali said the Naiad Toll Bridge was partly funded by Islamic finances.
"But companies cannot come and invest in more such projects because our banking rules don't allow them to do so," he said.
Balakrishnan said, Al Barakah Financial Services will again move the RBI for approval and expressed the hope that it will come by going by the 30 percent (or USD 300 billion) funding gap envisaged by the Centre for its USD 1 trillion infra push in the next Plan period.
He also drew his optimism from the recent statement by the Prime Minister that it is high time the country looked at the Malaysian model of infra funding.
The Southeast Asian tiger economy heavily depended on Islamic funds for its infra expansion. So are China, the US, Britain, Germany, France and many other non-Arab, non-Muslim nations, Balakrishnan said, adding Islamic banking is thriving in as many as 75 countries today.