, by S.M. WASIULLAH
The Islamic finance for its successful journey in the Indian market should focus three important dimensions. These dimensions have to be kept in view when we are planning and discussing about the operation, functioning and contributive role of Islamic finance in India.
First, India’s life resolves in rural areas. As per the recent data, 72%of Indian population resides in rural areas to which the prevailing financial services are not reachable. This huge population, which is not provided with the satisfactory and just services by the present day banking and financial system, should be the first dimension where Islamic finance (industry) needs to focus. As it is a well-known fact that the major occupations of the rural population include agriculture, husbandry, cattle breeding and other small and marginal agro-based industries. These small occupations and industries are falling sick because of unavailability of financial support.
It’s been a tragedy that wherever the financial support made available, the customers are pulled into debt traps resulting in suicides and other socio-economical problems. So, to provide a better financial support for the rural population should be one of the main objectives of Islamic finance (industry) in India.
Secondly, the Indian subcontinent is happened to be the habitat for around 160 million Muslims, the second largest figure in any nation witnessing historic relation of India with Islamic finance. The Indian Muslims own Rs.50 billion as annual inevitable resources that are not utilised.
But according to the Sachar Committee report, 70%of Muslims keep themselves from playing any direct or indirect role in Indian financial sector. The main reason behind is the prevailing of ‘Interest’ (which is prohibited and termed as a major sin in Islam) in this sector. Owing to this single reason, they are excluded from having a crucial role in the nation’s growth and development.
Therefore, the Islamic finance can become the ray of hope for this section of society and may help in taking this community to the mainstream to contribute for national development. And from the religious point of view, it will also keep them from woes of Interest-based financial services which are strictly prohibited in Islam.
Thirdly, according to a reportof Investment Commission of India, the major sector of Infrastructure has an opportunity of USD 427 billion investment, Services sector has USD 143 billion, Manufacturing sector has USD 229 billion, Knowledge Economy has USD 38 billion and Natural resources has opportunity USD 35 billion investment for the next five years. A point has to be noted while planning to accumulate this huge capital that going for debt both from internal and external sources would be a risky job and might result in the debt trap, in which India has already fallen. So, to protect India, Islamic finance can play a vital role.
This would eliminate and clear the misunderstandings about the Islamic finance that it is a religious finance focused on a particular section i.e. Muslims and has nothing to do with national development.
Islamic finance with its products like microfinance would provide satisfactory services to the daily wage workers, farmers and other BPL families. Towards growing population in urban cities, Islamic finance can come up with innovative products and satisfactory services in the sectors like Capital Market, Insurance, Mutual Fund, Retail Market, Trading Loans, Real Estate and Small Infrastructural Development projects.
At national level there are many opportunities in the form of long term Infrastructural development that are expected in future and have to be cracked with full plan.
It is to be noted that constituting a Co-operative Society, a Trust as Domestic Venture Capital Fund and Foreign Venture Capital Fund registered with SEBI, Islamic Insurance business, an Islamic window in a conventional bank, to carry on Shariah financing activities is permissible within the existing laws and regulations. Hence, apart from making efforts for changes in laws, the Islamic financial system can also be introduced easily by starting what is permissible within the extant laws.
The first and foremost challenge is of Legal issues. The entry of Islamic finance in the form of Banks and NBFCs require changes in the prevailing laws in Indian Financial and Capital Market, particularly the Banking Regulation Act of 1949under which all financial institutions are regulated and monitored. The Working Group constituted by RBI in their report concludes that there are appropriate amendments required in Banking Regulation Act, 1949 and a Separate Rules and Regulation will have to be formed to permit the business of Islamic banking in India.
It depends upon the ability of the Islamic Finance (industry) how it convinces the Government of India and lawmaking body to amend the prevailing laws or to introduce the new law and Act in its favour.
GOVERNMENT AND ITS POLICIES
The second challenge is the government body and its policies.India is known as the largest democracy all over the world. Being large, it is uncertain and ever-changing, and also carries slow procedures with corrupt system. With the changing governments most of the policies adopted change. The new government designs new policies, which may or may not support the decisions of the previous government. Therefore, these features may have an effect on the government’s decision on Islamic finance and banking in India as seen from the past.
MODEL AND STRUCTURE
India is a multicultural society. It has a different identity due to its different demographical, geographical, socio-political and economical diversity. So, the existing models of Islamic finance in the GCC, European region and even in the Asian nations like Pakistan, Indonesia and Malaysia are not fully feasible of being implemented in the Indian Market. Most of the models are either designed in the Muslim majority nations or in the Trade based economy. Whereas in India the majority is Non-Muslims and the economy of India is Production based or is Agro-Industrial based.
Therefore, either these existing models have to be modified on its major parts or the experts have to design a new model of Islamic finance which best suits Indian market.This is the fourth challenge that Islamic Finance (industry) is going to face.
RESEARCH AND DEVELOPMENT
In India, very limited literaturehas been written on Islamic finance in Indian perspective, specifically in regional languages. The limited literature available does not discuss the ‘Islamic Finance in India’ in detail. The second reason is that very few products of Islamic finance are available in India. This variety of products that are available in the market can not satisfy the huge population of customers. Therefore, there is a need to have enough literature and innovative, feasible, profitable and much diversified products in India. To develop such a huge literature and variety of products that can teach and satisfy the rural and urban customers at a time, Islamic finance in India needed Research & Development (R&D) centres throughout the nation. The task of R&D with respect to literature, processes, products, market and functions has to be carried out with rapidity. This is the fifth challenge for Islamic Finance (industry) in India.
The sixth challenge is the Qualitative human resources (HR). The Islamic financial institutions require both qualitative and well-trained professionals to meet the competition in market. Without qualitative HR the road to success may not be possible. So, there rises a new task for this industry to teach and train the youngsters on the required areas of Islamic finance.