Source: P.K. Abdul Ghafour | Arab News

JEDDAH: Indian Finance Minister Pranab Mukherjee has assured a delegation of Indian Centre for Islamic Finance (ICIF) that he would soon discuss the feasibility of introducing an interest-free Islamic banking system in the country with RBI governor.

“Our talks with Mukherjee were very positive. He has taken note of the major points in our memorandum and promised to have detailed talks on the topic later. I am now very optimistic about Islamic banking in India after the talks,” said H. Abdur Raqeeb, general-secretary of ICIF who led the delegation.

Raqeeb said the finance minister had informed him that he would meet the RBI governor next week and that he would discuss the matter with him. “The minister also told me that he would be visiting Saudi Arabia shortly and would be available in the second week of November and then a meeting could be arranged for ICIF to interact with the secretaries and officials of the ministry’s banking department,” he added.

Raqeeb said the minister was impressed when informed that Islamic banking would benefit not only Muslims but also non-Muslims in the country. “About 40 percent of the clients of Islamic banks in Malaysia and 20 percent in Britain are non-Muslim,” he said. The Vatican has recommended Islamic finance because of its emphasis on ethical and socially responsible investments.

The delegation also briefed Mukherjee on the Kerala government’s decision to launch an Islamic investment company with a capital of Rs.10 billion following a feasibility study conducted by Ernst & Young. The company could be developed into a global Islamic bank at a later stage with RBI’s consent.

The Finance Minister went through the three-page ICIF memorandum and keenly read the recommendations of Raghuram Rajan Committee on Financial Sector Reforms. The Committee had advised the government to take measures to permit the delivery of interest-free finance on a larger scale, including through the banking system.

The delegation convinced the minister that the introduction of Islamic banking and finance would help India attract huge funds in investments from oil-rich Gulf countries. It will also encourage many Muslims, who avoid dealing with interest because of religious instructions, to invest their money.

“In India billions of rupees earned in interest are kept in suspended accounts, as believers do not claim it,” Raqeeb said quoting an RBI journal report. “The assets controlled by Muslims are estimated at $1.5 trillion and growing at 15 percent a year,” the journal said. In Kerala alone it is reported that this money could reach more than Rs 400 billion.

The delegation urged the Reserve Bank to allow Islamic banking/products through subsidiaries of banks and amend the BR Act/RBI Act by way of insertion of a separate chapter exclusively dealing with all aspects of Islamic banking business/products.

It also called for the setting up of Bharatiya Interest-Free Banking Company and a National Interest-Free Banking Corporation.

Meanwhile, the Indian Friends Circle in Riyadh said they were intending to present a similar memorandum to Mukherjee during his visit to Riyadh to consider Islamic banking as an alternate financial channel. “As an experiment a Shariah-compliant fund can be started at State Bank of India’s Jeddah branch,” the circle said in a letter to the minister.

“As Saudi Arabia has a large NRI base, of which many are followers of Islam and would like to invest their hard-earned money in financial schemes that are based on Islamic faith,” said Ahmed Ali, its president. “This wealth can be used to enhance the economy of India,” he said, adding that a copy of the letter has been presented to the Indian Embassy in Riyadh.