Greener pastures open in banking sector

KOZHIKODE: The Muslim education institutions in Malabar have taken a cue from the state government in their interest towards Islamic banking.

While state government is expecting more funds to come to the state through the new banking system, the educational institutions here are gearing up to offer specialized courses anticipating a huge manpower requirement.

Though the RBI nod to start operations for the Islamic finance company Al Baraka Financial Services, promoted by state government’s Kerala State Industries Development Corporation, is awaited, the job market is abuzz with the enormous job potential it is likely to offer.

Islamic banking is an interest-free banking system operated in accordance with Sharia laws that prohibits taking or giving interest. Under the system, banks do not pay interests on deposits nor do they charge interest on loans. The money deposited is used to finance projects on ownership basis.

The fact that many graduates in the state have got lucrative job offers at MNCs in west Asia in companies offering Shariah-compliant mutual funds and venture capital funds has increased the lure for the courses.

“We have seen a growing interest for our postgraduate diploma in Islamic economics and finance (PGDIEF) course. Currently we offer 40 seats a year but the number of applicants last year was nearly 200,” said Mohammed Pallath, chief coordinator of the course at Al Jamia Al Islamiya, a religious college, at Santhapuram. The institution also offers diploma courses of IGNOU in Islamic banking, Islamic finance and Islamic insurance.

Shoukath Ali, a faculty member teaching Islamic finance at the institution, said that requirement for qualified professionals in Islamic finance will see a big rise once the non-banking financial companies (NBFCs) like Al-Baraka and other projects take off. He said that by adopting Islamic banking the state can channel billions of rupees needed for development activities.

There are many other institutions in Malappuram and Kozhikode which offer similar courses. The Elijah Institute of Management Studies in Thrissur has recently started offering a postgraduate diploma course in Islamic banking and management as an add-on course for their MBA students.

source : The times of India

‘Islamic Finance in India can attract investments from Middle East’

Malegaon: Taking advantage of the situation arising out of the economic crisis in Eurozone and countries like United States, India should adopt the Islamic Finance System to pump-in investments from the Middle East. This interest-free and more inclusive system will in turn speed-up the financial inclusion of the Indian Muslims, an expert in Islamic Finance said in Malegaon Sunday.

“The Global Economic Crisis in the West is forcing investors to search for secure places of investment. Creating a situation which is suitable for such investors especially those from the Middle East can pump in huge investment in the country. Introduce the interest-free alternate financial system here and see how the funds start flowing from the oil-rich countries to India”, Dr. Shariq Nisar said while speaking to

Dr Shariq Nisar, Director of Research and Operations of India’s premier shariah advisory firm TASIS and one of the senior most professionals of Islamic Finance in India, was in Malegaon on Sunday to address a seminar on “Prospects of Islamic Finance in India”.

“China and the Middle East are the two areas in the world where surplus funds more than their requirements are generated. China will never like to invest in India for the obvious reasons. We do not have such problems with the Arab World. We can attract the investors from there by introducing the Islamic Finance in our country”, he said while pointing at the requirements in the country of reliable and committed investors in stock market, and banking and insurance sectors.

“And why not, the system is running successfully in more than 75 countries. It has also earned these countries rich dividends. Then why are we reluctant in taking a decision?”, he asked while listing the countries like United States, United Kingdom, France and others besides the Muslim countries where Islamic Banking System is successfully running.

“Almost all the top multinational banks including Standard Chartered Bank, HSBC, DBS, Barclay and others either have their full-fledged Islamic banks or have special windows in their branches – some located in the areas where Muslim population is negligible”, he said adding, “Singapore has in fact taken the lead to introduce the system in the Asian sub continent by opening The Islamic Bank of Asia”.

Linking the Islamic Finance with the empowerment of the Indian Muslims, he said, “The much sought after Muslim empowerment and their financial inclusion can also be achieved by bringing in the system here. For, a vast majority of the community keeps away from the existing banks merely because they are based on interest.”

“The Islamic finance will not only provide them an opportunity of getting financial assistance, it will also streamline the amount of funds lying with the Muslims that otherwise don’t flow in the existing system”, he said while giving the example of Kerala where efforts are on to utilize in a suitable way an estimated 14000 crore rupees belonging to the Non Resident Indians (NRIs) mostly of the Gulf.

Interestingly, at the time when Dr Shariq Nisar was discussing with in Malegaon about the investment opportunities in India from the Middle East, thousands of kms away Chinese Premier Wen Jiabao on an official visit to Saudi Arabia was signing agreements related to trade and investments with Saudi crown prince Nayef bin Abdulaziz Al Saud.

source :

Kerala must tap Islamic funds for infrastructure development, say experts


Kerala could become a role model of tapping Islamic finance market to raise badly needed funds for infrastructure development, according to experts.

Mr H. Abdur Raqeeb, Convener, National Committee on Islamic Banking at the New Delhi-based Indian Centre for Islamic Finance (ICIF), made a strong pitch for these funds at the Infrastructure Conference-2011 that began here on Wednesday.


Speaking to Business Line, the State Minister for Public Works, Mr V. K. Ibrahim Kunju, and the Secretary, PWD, Mr Manoj Joshi, said the State Government wholeheartedly welcomed Islamic funding agencies in the space of infrastructure development.

Infrastructure development is as Shariah-compliant a cause as they come, Mr Joshi said.

There is nothing that prevents these funds being channelised into the State’s developmental scheme of things, he added.

The PWD Minister concurred, but observed that the State’s own efforts to set up an Islamic financing institution were still in a ‘fluid stage.”


The Minister for Industries, Urban Development and IT, Mr P. K. Kunhalikkutty, too, underscored the importance of tapping the Islamic finance model at a time when traditional sources of funds are becoming either increasingly inaccessible or cost-prohibitive.

Meanwhile, Mr Raqeeb quoted a Kerala High Court observation that no specific prohibition was contained in any statute that made it impermissible to carry out Islamic banking in the country.

Simple regulatory changes could transform India into a regional hub for Shariah-compliant finance and clear the way for a much-needed wave of investment into its infrastructure, he added quoting international experts and consultants.


“When London, Tokyo, Hong Kong, Singapore and Paris have become Islamic banking hubs why can Kerala not become one and lead the country to become a developed economy in the near future?,” he wondered.

Islamic banking focuses on transparency, cooperative ventures, shared risk and ethical investing attracts a wide range of both Muslims and non-Muslims alike.

In Malaysian Islamic banks, more than 40 per cent of investors and 60 per cent of borrowers are non-Muslims, mostly Chinese.

One in five applicants for some of the Islamic products is a non-Muslim in the Islamic Bank of Britain.


Asset-backed Islamic bonds, known as ‘Sukuks,’ provide funds for long-term investment.

This tool is used in a number of developing and developed countries. India too should seek to make use of these resources, Mr Raqeeb said.

The fact is, Islamic finance can do wonders. Post 9/11, petro-dollars have been actively eyeing for a safe investment destination.

And this is the opportunity that India should avail of, given that it is not just a safe but vibrant investment destination.


An estimated $1.5 billion in funds is sloshing around West Asia as of now. The region will have $8 trillion to invest by year 2020.

Ms Muliani Indrawati, Managing Director, World Bank, has confirmed that the World Bank Group has ‘formally recognised Islamic finance and has designated it a priority area in their financial sector programme.’

The World Bank has always closely cooperated with the Islamic financial services sector. This demonstrates its commitment to help strengthen the institutional development of the industry.

source : Business line : The Hindu

Islamic Banking System is better for India – RBI Director

Former Director of the RBI says “Banking Regulation Act, 1949 without changes in India’s Islamic banking system can be implemented. Oligopoly of people and marginalized people for Avm deliberative will prove a boon for Islamic banking system”.

Reserve Bank’s former director Mr Abdul Hsib Jamaat in Mumbai said the seminar held last year under the theme of  ‘Global Financial Crisis and Islamic Economic System’.

Islamic economic system in India, his advocate said that “Raghuram Rajan Committee for improving the economic sector, given the fact that Islamic banking system it is best told. India’s Islamic banking system for improving the economic sector to implement best would be more effective. ”

The Islamic banking system and interest-free banking system and the information that many countries of the world that have interest-free banking system and its effective too.

New century while the world is recession and all are facing economic troubles, the solution for this to re-think. Islamic banking and economic system that it deservedly is unaffected and even a feature that ‘caring and Sharing’, transparent and it is close to human values and principles.”, Islamic Banking, governor of the National Committee Sir Abdur — raqeeb the Tipnni, “while Japan, France, England and billions of dollars for trade liberalization Mulkh though the adoption are welcome so why can not we”, he further argued.

He also clarified that in the minds of people that this economic system is only for Muslims, it is wrong because the system is successful and all over India for global Insha – Allah. Islamic banking and financial system is in the interest of all humanity.

“Opacity and interest has also encouraged more economic disasters, has led billions of dollars damage.” Dr. Srikh Nisar (economist and scholar of Islamic banking system) has been analyzed speculation of Interest Free Loan, Leasing The Islamic banking system, stating that these services and products primarily to Mudaraba (speculation), Krd – e – Hsna (Interest Free Loan), farm (Leasing) is etc.. People should study alternative economic system so that they know It’s better than the existing banking system to ”

Translated from hindi

Economics of Islamic Banking in India

Syed Zahid Ahmad


In the past few years Islamic finance in general and Islamic investment business in particular have gained considerable ground. Prominent global financial players such as McKinsey and Beary’s Group have introduced Shariah-compliant investment funds. China has recently opened its doors to Islamic banking in order to attract investment of funds from Muslim countries. Islamic banks in China and the UK are attracting even non-Muslim customers in a substantial way.

In India, East Wind has launched an Islamic Index while Reliance Money and Religare have launched Shariah-compliant Portfolio Management Services. Shariah-compliant stocks in the Indian stock market indicate positive trends.

Unfortunately, a great deal of misconception surrounds the issue of Islamic banking in India. Islamic banking is generally believed to be an exclusively religious domain of Muslims and it is feared that the introduction of Islamic banking in the country would lead to financial segregation and that in consequence of the move the country’s scheduled banks might lose Muslim depositors.

It needs to be clarified that the scope of Islamic banking need not be confined to the Muslim community alone; rather, its doors should be open to the wider Indian society. Regrettably, no study has been carried out on the economic viability and sustainability of Islamic banking in India and its potential for inclusive growth.



Islamic banking requires a far greater level of professional expertise compared to conventional banking because it deals more with investment projects than with monetary credit and debit transactions. Indian Muslims lack the requisite professional expertise to run modern commercial banking along Islamic lines. The State Bank of India, which is the country’s leading commercial bank, has the requisite expertise and infrastructure to manage the complex project of Islamic banking.

The Reserve Bank of India’s directions to scheduled commercial banks emphasise lending to the small and micro enterprises. In essence this reflects the significance of the Islamic approach to banking. The majority of borrowers from the unorganised sector are non-bankable due to collateral problems. They actually need equity finance rather than debt finance. The approach of Islamic banking is fundamentally different from the conventional approach in that it emphasizes equity deposits and credits while the instrument of interest is replaced by profit and loss sharing arrangements.

It is likely that even after the introduction of Islamic banking in India the first choice of depositors and investors would be nationalized banks. Indian Muslims also have confidence in nationalized banks. To ensure security of their deposits, the majority of Muslims depositors would prefer to join Islamic banking managed by nationalized banks and not the banks run by Muslims under the pretext of Islamic banking. However, it is expected that foreign investors looking to invest in India through Islamic banking would prefer to avail of the services of foreign banks. As far Indian Muslims are concerned, they have to make serious efforts to find their place in managing Islamic banking because they lack the necessary financial strength, expertise and infrastructure. More importantly, they have poor credibility among the depositors and investors due to the failure of a few financial institutions run along Islamic lines.

There are reasons to believe that Islamic banking, as and when introduced in India, would be helpful on several counts.

The 150 million-strong Muslim community in the country will have no hesitation in participating in banking transactions because the instrument of interest will not be there.

With the introduction of Islamic banking, Indian government will have the diplomatic advantage of financial dealings with Muslim countries and thereby attract trillions of dollars of equity finance from the Gulf countries.

Islamic banking will open new avenues of employment for Muslims and their presence in money and capital markets will improve. At present their presence in the banking sector is far lower than their proportion in the population. For instance, RBI employs 0.78% Muslims and scheduled commercial banks have just 2.2% Muslim employees. Similarly Muslims have a poor presence in NABARD, SIDBI and other financial institutions. Since financial institutions carry out interest-based transactions, many Muslims have reservations about participating in interest-based banking and financial institutions, resulting in their financial exclusion. The introduction of Islamic banking will redress the situation, at least to some extent.

Economic development is a continuous process and at present India has entered into the stage of high-cost economy. Here cost-push type of inflation is unavoidable. On the one hand, prices continue to rise and, on the other, the value of money, expressed in terms of purchasing power, keeps on declining. The continuation of inflation is highly injurious. If not controlled, it causes immense damage. Economists suggest several methods to overcome this problem, including keeping the “cost component” under control. It is here that Islamic banking can come to the rescue of an inflation-ridden economy. Since India’s scheduled commercial banks and other players in the money and capital markets extend debt finance, the interest component of their transactions adds to the rising costs. Since the credit cost is zero under equity finance, the severity of inflation may be minimised.

The continuation of inflation causes severe inequalities of income and wealth distribution. It is possible, through the introduction of Islamic banking, to control such disparities by curbing inflationary tendencies. In addition to this, the dividends shared by depositors and investors on equity finance would help an equitable redistribution of income generated through the financial sector. These are a few positive points which need to be considered by the country’s financial sector regulators.



Islamic Banking and Financial Inclusion

Though we do not have any credible data to compare community-wise financial exclusion in India, the data gathered by the Justice Sachar Committee indicates that around 50% Muslims are financially excluded and that banking is inversely related to the concentration of Muslim population. There are several reasons for this state of affairs. Since Muslims hesitate to enter into interest-based transactions, they try to develop alternative means such as interest-free societies. Their efficacy seems to be limited because of their poor capital base. Viewed from this perspective, the introduction of Islamic banking will help Indian Muslims to mitigate, if not eliminate, their financial exclusion.

The share of Indian Muslims in total savings deposits is 7.4% and their share in credit from banks is 4.7%. If we consider this as a standard proportion in aggregate deposits with and loans from scheduled commercial banks, Indian Muslims annually lose around Rs. 66,700 crores because they have a credit-deposit ratio of 47% as against the national average of 74%. It shows that Muslims lose around 27% of their deposits by not availing as credits. With the introduction of Islamic banking the intensity of this invisible loss to Muslim community will hopefully decline. Muslims avail of just 4% and a mere 0.48% credit from special financial institutions like NABARD and SIDBI respectively. This poor percentage may be partly attributed to the hesitation on the part of Muslims to engage in interest-based transactions.

Indian Muslims are looking forward to interest-free banking in order to avail of credit facilities for their betterment. Since Muslims are unable to start Islamic banks on a large scale on the strength of their meagre resources, the incorporation of Islamic banking principles into conventional banking may add at least 60 millions Muslims to the formal financial sector. This may enable Indian banks to mobilise additional savings worth 1,00,000 crores and extend credit worth over Rs. 2,00,000 crores.

Since Islamic banking focuses on equity deposits and finance, it is expected that stock market will be the most preferred avenue for investments by Islamic banks. Currently the Indian stock market is attracting investments under Shariah Finance schemes. It is expected that a good volume of term deposits with Islamic banks in India will preferably find their way into the Indian stock market. Experience has shown that the stock market is a safe and attractive mode of deploying equity funds. Thus Islamic banks may add additional 6 million new D-mat accounts with expected capital gain of Rs. 60,000 crores from domestic market and around one trillion US dollars through Islamic banks managed by foreign banks in India.

Under Islamic banking, the formal sector economic agents like corporate firms listed with stock markets would be the likely beneficiaries of Islamic banking because their shares would be subscribed through investors at Islamic banks. All the companies listed in stock markets will have additional subscribers who would genuinely subscribe their shares instead of indulging in speculative trading in stocks.

Where public finance is insufficient and debt finance may cause huge budgetary deficits, Islamic banking may help mobilize capital on equity basis to meet huge requirements of a growing economy like ours. With the incorporation of Islamic banking principles, the mobilisation of equity funds would be easier for banks. We must remember that over 50% of our rain-fed lands need irrigation which require huge investments. Further, the total investment in infrastructure in 2006–07 was estimated to be around 5% of the GDP. It has to be 9% of GDP by 2011-12, which requires Rs. 2,07,291 crores in 2006-07 and Rs. 5,74,096 crores by 2011-12 to finance our infrastructure. The total investment amounts to Rs 20,56,150 crore for the 11th five year plan, of which Rs. 14,36,559 crores are supposed to be met from public Investment and Rs. 6,19,591 from private investment. Islamic banking, by mobilizing equity finance from national and international markets, may reduce this burden on the public sector effectively. Once public finances are under control we need not worry about fiscal deficits and their potential inflationary threats.

Since we have no project or viability report on this issue, it would be advisable on the part of government to appoint a committee with a specific mandate to vigorously study the prospects of Islamic banking in India. At the same time it is also necessary that the vocal supporters of Islamic banking should present its case not just as a religious issue but as a broad-based financial alternative which would be beneficial to sections of society, regardless of caste or creed.

source : ios minaret

Sharia-compliant Islamic Banking in India, a wealthy proposition

Globally, Islamic finance is estimated to be worth about $300 billion, growing at 20% annually. With this growth, the need for Shariah compliant financial products has also increased. The product offerings are similar to normal banking products; however the main difference is that the funds collected are not for the purpose of accumulating/ paying interest or invested in any negative businesses that harm morality of the society. The basic principle of Islamic banking is the prohibition of interest.

India with a 13% Muslim population, the highest in a non-Islamic country, should have been in the forefront of Islamic banking initiatives, but it is yet to be permitted here. It will hugely benefit the Indian economy by attracting investments from the cash rich Middle Eastern economies on the lookout for new investment destinations. Five Indian companies, Reliance Industries, Infosys Technologies Wipro, Tata Motors and Satyam Computer Services figure in the Standard & Poor’s BRIC Shariah Index.


Under Islamic banking, the conditions for investing in shares are:
1. It is not permissible to acquire the shares of the companies providing financial services on interest, like conventional banks, insurance companies, or the companies involved in some other business not approved by the Shariah, such as companies manufacturing, selling or offering liquors, pork haram (prohibited) meat, or involved in gambling, night club activities, pornography, gold trading, advertising and media (with the exception of newspapers).
2. If the main business of the companies is halal (lawful), like automobiles, textiles etc, but they deposit their surplus amounts in an interest-bearing account or borrow money on interest, the shareholder disapprove such dealings.
3. If income from interest-bearing accounts is included in the income of the company, the proportion of such income in the dividend paid to the shareholder must be given to charity, and must not be retained by investor.
4. The shares of a company are negotiable only if the company owns some illiquid assets. If all the assets of a company are in liquid form, i.e. in the form of money, they cannot be purchased or sold except on par value, because in this case the share represents money only and the money cannot be traded in except at par.
5. For companies whose main activity is not un-Islamic but a part of their income is not purely Islamic or a minor part of it comes from un-Islamic activities are prohibited, for example hotel, sugar, entertainment etc.

Once companies are chosen from the above criteria, further screening is done on the basis of following financial ratios:
• Exclude companies if Total Debt divided by Trailing 12-Month Average Market Capitalization is greater than or equal to 33%.
• Exclude companies if the sum of Cash and Interest Bearing Securities divided by Trailing 12-Month Average Market Capitalization is greater than or equal to 33%.
• Exclude companies if Accounts Receivables divided by Total Assets is greater than or equal to 45%.

For profits made through capital gains, the accepted rule is that if requirements of the ‘halal’ shares are observed, then most of the assets of the company are ‘halal’, and a very small proportion of its assets may have been created by the income of interest, so the whole price of the share therefore, may be taken as the price of the ‘halal’ assets only.

The real estate sector is attracting investment from Middle East, as fund raising has got difficult in this sector. Around 50% of Indian stocks are believed to be Shariah complaint, but very few companies realize the potential., which is primarily due to non-availability of data on Shariah based investment appetite among local Muslims. Investors, local as well as global, will find Indian stock market a better place to invest, and sectors like IT, pharmaceuticals, automobile, energy, cement, steel and mining to choose from. Thus Islamic investment options available in India are wider and much better than the availability of the same in many Islamic countries.

source : labnol