By Prof. Irfan Shahid
Some people believe that Islamic Banking is particularly for Muslims and only Muslims can derive benefit from it. There is a misconception that Islamic Economical System will ruin their economy. A judicious research conducted by International Monetary Fund states that the Islamic Finance Industry has performed well and maintained stability during financial crises. An insignificant impact of the financial turmoil was observed on the Islamic Finance Sector in comparison to the Conventional Finance Industry.
This column aims to clear the misconception that Islamic Finance is not solely for the Muslim. The entire world can benefit from Islamic Finance. In the last decade Islamic Finance has spread around the globe. Islam is a religion of peace and harmony for everyone; likewise Islamic Banking is also for everyone. People of every caste, ethnic and religion can use the services offered by Islamic Finance. More than 40% Businessmen and professionals engaging in Islamic Finance industry are Non-Muslim.
Islamic Finance Industry has tremendously grown in a short span of time. It has reached more than 72 countries of the world. The present growth of Islamic Finance has been estimated annually between 15% to 20%. Currently more than 500 financial institutions are engaged in Islamic Finance Business and most of them are domiciled in Gulf, Middle East and Europe. Countries like Malaysia, Bahrain, Dubai and London have become the hub of Islamic Finance. Many emerging economies like China, Shri Lanka, Indonesia and Pakistan are opting for Islamic Finance as a parallel financial system.
Islamic Banking is a system is based on Shariah Commercial Law which is derived from the Quran, the Hadith (traditions of the Prophet Muhammad) and Islamic Jurisprudence. The main source of Islamic Banking, The Quran, prohibits receiving, paying as well as dealing in Interest. The gravity abomination of dealing with interest can be understood by Islamic view which considers fornication with ones mother is a minor sin in compared to intentional indulgence in interest based business. A number of hadiths and Quranic verses condemn interest and encourage real business through partnership and mutual agreement. Not only the Quran but even other religious scriptures of the world prohibits interest, Unfortunately followers of these religions do not read and follow their scripture with completely. History bears witness that interest has never turned to be fruitful for humanity. Interest based economy induces accumulation of wealth in the elite class of the society and deprives the middle and the lower class. The Quran urges distribution of wealth through the eight different needy sections of the society through the channel of Zakah Expenditure. Interest develops selfishness among money lenders and therefore they perceive the needy as customers or rather as prey. The documentaries and films made to project the atrocity of money lenders were silently lifted away from the market to hide their cruelty. It was collective efforts of money lenders to eliminate prospective which could endanger their business. Many Jews hate Shakespeare for the novel character Shylock, a Jew money lender who ready to cut flesh of his poor fellow who failed to pay back his money on time with interest.
Islamic Banking avoids Gharer (excessive Risk) in business and forbids investment in unlawful productivities like alcohol, tobacco and pornography. Modern Financial system considers money as goods therefore it demands interest on the lending of money. Islamic Finance differs from this view and considers money as medium of exchange, store of value and measure of value. Under the Shariah Law money could not be treated as goods and hence could not be rented like any physical goods, for instance house and machinery. Present Financial practice assumes money as the ultimate goal however money is not the ultimate goal, it a means to achieve the goal.
Islamic Banking and Finance promote real business which results in production, consumption and employment and thereby creates effective demand and steady growth in a country.
Islamic banking has become a part of the financial system, Currently it constitutes around 20 % wealth of modern banking finance. Every International Bank namely HSBC, DUETCH BANK, GOLDMAN SACHE, CITY BANK, STANDARD CHARTED, MERRY LYNCH, MORGUN STANLY have accommodated in the business of Islamic Finance and opened their branch in gulf and middle east.
Islamic Finance industry can put forth various in India. India is an emerging economy and it requires a huge capital to improve the infrastructure like road, bridge, mono rail, tram and airport. Similarly supply of adequate energy, drinking water, housing and health services requires a huge and long term investment. Islamic Finance can meet the capital requirement of these projects. Kerala Development Authority recently ventured a construction project with Islamic Finance. Reserve Bank of India has approved the project, Kerala High Court has already granted the permission to implement this project.
Advent of Islamic finance will increase the foreign reserve of the country. Indian Economy is passing through the problems of Unemployment, low per capita income and high inflation Islamic Finance Industry will suck more than fifty thousand professionals in gulf and Middle East estimated by CIMA a UK based Financial Accounting Institute. Expansion of Islamic Finance Industry creates a huge job opportunity and real business development which may cause to reduce the demand pull inflation. Research and Training is an integral part of Islamic Finance, hence arrival of Islamic finance will require the establishment of academic institutions that will provide job opportunity.
Islamic Banking is a considerate banking system which provides asset security along with environmental, health and moral security.
An emerging economy welcomes new concepts and Ideas. Islamic Banking is a new concept that will grow the Indian economy; it should be accepted in an developing Economy like India.
It is arena of globalization, where every country competes with it neighboring country. India is also competing with various neighboring countries like China, Sri Lanka and Bangladesh . These countries have ventured into Islamic Finance, Only India is reluctant in opting due to political pressure. India is dreams of becoming a super-power and the largest economy. Though it has the potential to achieve it but negligence in case of Islamic finance may push back India in the race of superpower. Latest research of Reserve Bank of India shows that India has the problem of financial exclusion. Many people do not have bank account yet that defuncts the estimation of National Income. It is assumed that among this group many are Muslims who avoid having a bank account due to the prohibition of interest in Islam . This leaves a huge amount of money idle in rural and semi urban areas. Arrival of Islamic finance in the country can invest these idle capitals and increase the circulation of money and thus enhance the productive capacity of the economy. In a nutshell, Islamic Finance is the need of the hour in India
* Author is a student of Economics and Islamic Finance, he has taught Economics and Islamic Finance in Europe. Currently associated with Mumbai University.