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 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

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

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