Islamic Banking in India- Problems and opportunaties

Saudi Arabia, Malaysia, Kuwait, the United States, Britain, Japan, Thailand, Morocco, Tunisia are few countries where interest-free Islamic banking system is rapidly becoming popular. Even with a long list of those countries where Islamic banking soon appear in practice. India could be one of those countries with the launch of Islamic Index for Islamic banking in capital Delhi.

With almost 60 million of capital already 10 private banks, according to the Islamic banking system are functioning in India. A surprising that many Muslim countries the Life Insurance Corporation has offered interest-free insurance plans as of yet in India this is not in a position to present a plan. The release of one of the country Islamic Capital Index Adwaijr Company Limited Indo Adwaijrs Istvind Capital – Arab Economic Cooperation Forum and the Institute has launched with objective studies. The Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) in 664 listed companies Islamic Index is a measure of moral fact. The companies on this scale with a certificate of integrity has been found.

The companies included in this index is their common Islamic market capitalization is Rs 4,146,880. Sector 9 boards and 68 it all – including Industries. If these companies classified according to CAP, then the Islamic index 52 High Cap, Mid Cap 236, 205 Small Cap and Micro Cap companies include 151. According to the release of Index Capital Istvind retail and institutional investors use the Islamic index will be able to invest.

The question is, what is all this Islamic index? Before that we need to understand Islamic Index Islamic banking system of understanding.

Islam 1400 years old is a financial system which has three major aspects. The first and major aspect, which those activities take yourself away from sin or evil in Islam is considered full. For example, gamble, drink alcohol and eating pork. The second aspect, the third aspect of interest must not, stay away from the uncertain activities. Islamic Index of companies actually live on these three aspects is the stock index. This investment could help such investors that Islamic finance based on moral or companies want to invest their capital. Islamic banking system in India currently does not exist at government level. But launched Islamic Index Islamic banking system in India in fact could become a tool of the beginning.

The question is, what are rapidly developing country like India needs an Islamic banking system?

If the global performance of Islamic banking system should look – yes, it is.  Economists and financial experts estimate that Islamic banking is that it rapidly gained popularity in view of the world economy in the coming decade, Islamic and non Islamic is divided into two camps. In fact, if Islamic banking or financial system would have been an extension Sirp Muslim countries in the world that doubts remain about being overshadowed. But the truth is that non-Muslims as Muslims by the Islamic financial system also has been getting massive support. Islamic banks in Malaysia to invest around 20 per cent non-Muslims and 40 per cent in Kuwait at the same Malaysian bank branch to deposit money and 60 per cent of the loans are non-Muslim. It can be guessed that the Islamic banking system as non-Muslims, between Muslims in the world is becoming popular rapidly.

Muslim countries, especially the Gulf countries were expensive crude oil grew too large huge income investments in these financial and banking institutions.

Overall, nearly 200 world banks and financial institutions that currently exist around 1000 billion U.S. dollars which is engaged and the capital is estimated that by 2010 it could be doubled. Since large parts of the world financial system in the Islamic trend in the public and Islamic banks and financial institutions increased significantly – is vital capital inflows. So almost all major world banks have either started their Islamic banking branches or have announced to launch. The American City Bank, Standard Chartered Bank, Sdibisi Bank, HSBC and the UK including major banks.  All these banks have opened their own Windows-based Islamic banking. So now the world’s other large banks have also turned this way. London, Tokyo and Hong Kong’s many large financial institutions with Islamic banking system to ignore the fast has begun. Citibank Islamic banking in Asia for Citigroup then duly ` ‘name for it has remained a separate department.

While Islamic banking system in India is concerned about Sugbugaht, the Emergency, when the center was built when the Janata government in India Jmayte Islami Hind introduction of interest-free Islamic banking system was suggested. But the then finance minister, HM Patel, interest-free banking system by telling it impractical rejected. But in 2004 when the center became the Prime Minister Dr. Manmohan Singh UPA Government of the Islamic banking system constituted a committee to explore possibilities. The Reserve Bank of India committee headed Operation Manager Anand Sinha were built. The Committee country – many banking and financial matters of foreign experts and the representatives of such institutions were included. । The committee later reported in their study said that the country will have to amend existing laws for Islamic banking which is currently not possible. Therefore be expected to cancel its conclusion, he expressed.

But Indo – Arab Cooperation Forum and Chairman of the Islamic decisive role in getting the index continued Dr. Alam says approved by the UK banking system to implement a duly Now your basic banking (system) has a constitutional amendment the problem then why India should be good. Interestingly, in Britain in 2004, there’s financial regulatory body to allow the establishment of Islamic Bank of Britain was. Overall, the thing to say that the way Islamic banking system expanded rapidly in the world is watching him very soon in India, the Islamic banking system also may appear at the government level. Maybe because in the last days, a committee headed by Cabinet Secretary has also been formed in which former officers, finance, law and Revenue Department Secretary also are included.

Islamic banking system in the world so fast after all, why is it popular?

Its biggest attraction is reconfigured to its interest-free loans. Islamic banking system is considered that one should be given credit for its economic upliftment, not to earn it. But the current debt policy is based on borrowers who earn from. Bank loans for that if he gives it Trp by how you maintain your interest will not be able. But taking advantage of interest rather than the Islamic banking system is part and partnership based on her income does establish the existence of its own. Islam is a rule that those who feel that food in the year – after drinking needs, which saves money, the money remaining in the half cent tax to give as zakat, which says. Islamic banking system through the zakat its pan – keeps on flowering. If in fact the Islamic banking system in India should be applied and the millions of needy people are interest-free loan to acquire the interest in the cycle are forced to commit suicide every day, it will be a divine miracle. However, the poor currently can only hope that how soon they will get loans from a system that will not help them.

Aliens in Calicut : On the Scope of Islamic banking in Kerala



A UFO once landed in the Calicut town. The aliens came out of the space ship and began to roam in the streets and villages of the Malabar town. After a while, they contacted their HQ in Mars saying, ‘Negative’.

Apparently they were planning to install their relay station in order for the Earth inhabitants to stay in touch with their planet. But the choice of Calicut suffered the following defects:

1. Few potential number of people who could use/operate that facility
2. There were hardly an educational system to produce workforce to operate and carry on the required R&D for its future evolution
3. The Calicut residents also could not afford the cost of running and maintaining it

Dear friends, I wish to present here before you a sociological approach in the study of the scope of Islamic Banking in Kerala. Handicapped by incompetence, I do not wish to go into the theoretical details of this emerging banking practice. Other speakers in the session would delve on the in depth concepts. However, I wish bring into your attention certain opportunities we have overlooked in the past.

I drew my conclusions as part of the readings and interactions I conducted two years back during a visit to Kerala. Back then I had shared my perspectives on this topic with scholars and leaders such as Sheikh Muhammad Karakunnu, Dr Hussein Randathani, Munawwar Ali Shihab Thangal and Kamal Pasha.

I thank the organizers for inviting me to this scholarly function and giving me an opportunity to share my bits.

The case of believer is strange. He sees good in all that happens around him. The present global crisis is also an opportunity to highlight the positive aspects of practice of Islamic banking.

We have considered for long time that the Western concept of financial system was absolute and eternal. That is what we have studied and continue to teach our young ones. Nobody so far dared to question the ethics of Wall Street and its greedy investors.

In an article recently published on New York Times, Thomas Friedman, quotes a Hong Kong investor saying, ‘It is hard for America to take its own medicine that it subscribed so successfully for others. There is no doctor anymore. The doctor himself is sick’. In the same article, he also blames the Wall street which is ‘fuelled by cheap credit, low standards and high greed.’

It is at this point that we are projecting Islamic Banking, which is based on mutual help and risk sharing.


The Islamic financial instrument called ‘Sukuk’ is being considered as a solution to the badly affected world economy. According to experts, while conventional banks are on the verge of collapse, the facts and figures suggest that Islamic banks practicing Sukuk have come virtually untouched.

United Kingdom Treasury and the Ministry of Finance are seriously considering the use of Sukuk as a debt management tool in the wholesale sterling and yen markets.

Britain, which has less than 2 million Muslims, already has 6 Islamic banks, of which three were set up in 2008.

‘Allah will always help His servant for as long as he helps others.’

‘The place of relationships and feelings of people with faith, between each other, is just like the body; when one of its parts is afflicted with pain, then the rest of the body will be affected. (Narrated by Imam al-Bukhari and Imam Muslim)’

‘Basis of Mutual Protection By my life, which is in Allah’s power, nobody will enter Paradise if he does not protect his neighbour who is in distress.’

However we should understand that a bank has all the expenses as any other corporate entity. Staff salaries, electricity and water, rent and other overheads have to be borne. Islamic banking technically speaking is not about charity. The profit-motive is essential for any business. But Islamic banking cannot charge interest for this.

Islamic banking has still not reached this zenith. It is still under an evolving stage. The service charges in an Islamic bank maybe more than other conventional banks. But we should perceive such charges as fees paid for services of higher quality. Just as we are ready to pay high price for fruits of high quality in our grocery shopping, we should also be delighted to pay extra for using a service which would save us from hell-fire.


The Indian government is also pursuing the goal of introducing Islamic banking in India. The RBI has completed studies in this direction.

Raghuram Rajan Committee on Banking Sector Reforms in its report had recommended introducing Islamic banking in India. The term he prefers to us is ‘interest-free banking’ instead of ‘Islamic banking’. “Interest-free banking does not mean charity, of course. It only means that the investor/lendor does not get interest, but gets compensated through a form of profit-sharing.”


Back to the UFO story.

The aliens suggested three reasons for their ‘Negative’ attitude for implementing the relay station in Calicut. Now let us change the Relay Station to an Islamic Bank in Calicut or say Muslim Kerala.

Muslims in Kerala enjoy three exclusive features which entitle them to adopt Islamic Banking:

1. Potential population – Muslims are the second biggest community in the state. And in districts like Malappuram, Calicut and Kannur, they outnumber more than other communities.

2. The community is led by very capable political and religious leadership which has paved way for their prosperity in comparison to their counterparts in other states of India. Several groups run schools and colleges in a systematic and organized manner. The political will to implement the Islamic banking is easily available. Institutions of higher religious learning can provide the intellectual backing required for the research and development of Islamic Banking concepts.

3. Finally, there is no dearth of funds as Muslims in Kerala are perhaps the wealthiest in the country having the highest standard of living. “There is at least Rs5,000 crore of unclaimed interest in Kerala alone. People prefer to put their money in gold or jewellery, which is the worst kind of investment from an economic point of view,” says an expert.

These above factors necessitate the founding of Islamic Banking in Kerala much earlier than in any other part of India.

According to Sheikh Mohammed Karakunnu around 200 institutions exist today in Kerala operating to achieve the above goal.

There are bodies such as Indian Association for Islamic Economics (IAFIE), but the banking model is yet to hit the mainstream. The RBI is yet to recognize them as legal entities.

The bright side of life is Islamic Banking is seen by all as a workable financial system and not as a religious move by religious fanatics. Many conventional banks have opened their separate Islamic units offering sharia-compliant products and services.

It is interesting to note a comment by a lady investor Margaret McDougald,
‘I strongly believe that if we had operated on what I understand to be Islamic principles, we would not be in the current global mess we are today. I write not as a Moslem, but a Chirstian with great respect for Islam and I studied Islamic finance in order to understand how it was possible to operate without usury. The principle appears to be one of shared risk, leading to shared profit or shared loss. I am looking to put some (small) savings into an Islamic Bank as this seems to be a better way of doing things.’

We need to keep in mind that Islamic Banking is all about an ethical outlook in to the profit-motive of our lives. The present global economic breakdown is a result of beastly greed without concern for human conditions or the hand of God.

Banks are part of our community. Although individual profit-motive is not a crime, such a desire cannot kill thousands for achieving it. Allama Iqbal, the Poet-Philosopher who wrote Ilm-ul-Iqtisad, Book o Economics, talks about the explitation of banks in these ords

In splendor, in seduction and in grace,
The buildings of banks outsoar the Houses of God.
In appearance it is trade, in reality gambling,
Profit for one, for thousands sudden death

soure : jannah org