ISLAMIC BANKING IN NON-MUSLIM COUNTRIES AND ITS POSSIBILITIES IN INDIA

-Dr. WAQUAR ANWAR The topic of discussion may be approached on two mutually exclusive methods. One is to study the current growth of Islamic Banking in the world, particularly the non-Muslim world, and assess the effectiveness of the move to introduce the same in our country, India, and interpolate the actual growth to assess whether it is possible in this country or not. Another approach is to study the suitability or otherwise of the Islamic Banking as it is practised today and opine whether it is feasible for non-Muslim countries, particularly for India, or not; and if there is any aberration in the area of feasibility whether that can be corrected or not. In this paper we are not approaching from the viewpoint of zealous propagators of the idea for whom any questionmark on the feasibility may be a taboo! We shall be more critical in our approach here. We shall classify the non-Muslim countries for the purpose in hand and see what is making Islamic Banking popular and shall try to understand whether these apparently positive aspects are actually desirable or not. After describing in brief the present financial conditions of the non-Muslim countries we shall conclude on the adjustment and changes that should be effected in the Islamic Banking as it is practised. In our total analysis we shall approach from the basic idea that the word Islam in the Islamic Banking should not be a misnomer and so our guiding principle shall be the higher principles of law in Islam Maqasid-e-Shariah. NONMUSLIM COUNTRIES The term nonMuslim countries is in vogue, generally, for nonOIC (Organisation of Islamic Conference) countries where Muslims are in minority. The Muslims in these countries are in minority with respect to the total population in those countries severally. Otherwise if we consider the case of total Muslim population on the globe, the situation will be much different. Relatively in a number of these so-called nonMuslim countries Muslims reside in greater number than many of the so called Muslim countries. Executive summary of the report of The Pew Forum on Religion and Public Life published in October, 2009, has highlighted this phenomenon. Following quote from the report is selfspeaking: While Muslims are found on all five inhabited continents, more than 60% of the global Muslim population is in Asia and about 20% is in the Middle East and North Africa. More than 300 million Muslims, or one-fifth of the worlds Muslim population, live in countries where Islam is not the majority religion. These minority Muslim populations are often quite large. India, for example, has the third-largest population of Muslims worldwide.

China has more Muslims than Syria, while Russia is home to more Muslims than Jordan and Libya combined. Among the non-Muslim countries we may classify as the one with sizeable Muslim population and the other with low Muslim population. India, Alhamdulillah, falls in the first category. The importance of the classification based on size of Muslim population within a Muslim minority country is that anything that is concerned with Islam is concerned both with the four fifth of them residing in Muslim countries and the one fifth residue living in the other areas. Islamic Banking draws its strength from its prefix Islam and almost all Muslims residing in any part of the globe are watching the developments with interest and concern, if not commitment and involvement. This is the basic strength of the system that a sizeable number of persons are looking at it with favourable opinions. Further, a sizeable section of this sizeable population is also yearning for its success. Muslims can be rightly considered to be the first clientele base of an Islamic Bank in a new place. Its benefits once becoming obvious other communities will not shy away as is evident from the participation of Christian and Buddhist Chinese businessmen of Malaysia who are dealing with the Islamic Banks there in good numbers. The development of any system on communal lines is basically not undesirable provided its benefits are open to all and everyone else is free to adopt the same. Things that are good for the humanity at large may emanate from any place or group. Their technical viability or financial feasibility or legal standing or moral worth will be judged on their methods, operations and the benefit or otherwise to the society. Islamic Banking, the writer believes, has passed these litmus tests. However, one may discuss how to make it more useful and relevant in a particular set-up. The set-up in which we are presently concerned is the non-Muslim countries both with sizeable Muslim population and relatively less Muslim population. A feature of these countries is that Muslims are relatively lower in financial, educational and social status as compared to other communities in most of these places. This is true about India too. (One may refer to the Sachar Committee Report). Another characteristic feature is that Islam bating or Islamophobia is present in a vocal section of the society. Higher the Muslim population higher may be the phenomenon of hate-Islam. As far as India is concerned there is obviously a committed social activists group that supports Muslims and their affairs and a silent majority that has good neighbourly feelings but the political and administrative establishment comprises a dominant group of communalists, be hard-Muslim-haters or soft-Muslim-haters. POPULARITY OF ISLAMIC BANKING

In the backdrop of the above discussions let us discuss that despite all what makes Islamic Banking popular and acceptable. We often come across the dubious situation that Islam-haters too have a soft corner for this system. Islam is not acceptable, even the tiny piece of linen on the heads of Muslim women is not acceptable but the so-called system of Islamic finance that is presented by its die-hard propagators as an alternative to the present economic and financial system of the world is not only tolerated but is welcome. This dilemma needs to be understood; the quiz should be answered. We cannot afford to close our eyes to the uneasy query. Some possible reasons of the popularity and acceptability of the Islamic Banking are as under: 1 Evils of interest based system have become so obvious that men are in search of an alternative and Islamic economics, banking and finance have been accepted to be the much needed panacea. 2 The performance of Islamic Banking as practised in many countries has become so much attractive that the world is now craving for it. 3 Islamic Banking will add to the reach of banking activity, making a significant chunk of population bankable. 4 It will attract petrodollar. The first reason cited above has an element of truth that the interest based economic and financial system of the world has caused havoc and that Islamic system has the ability to prevent the recurrence of the global financial crisis and resolve all related issues. But the world is not ready to do away with the system it is following. The recent declarations of G-20 countries prove that the nations are not ready to discard the capitalistic system in vogue and all attempts to overcome the problems are based on continuity of the same old and existing methods. This is a separate topic and the scope of this paper does not allow us to delve further upon the topic. The truth is that the Islamic system has not been fully and effectively introduced, presented and popularised in the world to merit any worthwhile attention towards it. Further, mere Islamic Banking is not the solution to the problems. An elaboration of the Islamic economics along with addressing other related issues is called for. The second reason described above is also not true. The system will not be noteworthy till it gets full support of Central banks and governments and its performance outweighs the conventional banking to such a degree that they are made redundant if not replaced by the onslaught of the new idea. The governments and central banks of most of the countries where Islamic Banks have any presence have not till date committed them seriously to the core idea of interest free banking. Conventional banking continues to be the basic system in

most of these places inter alia Iran, Pakistan, Sudan and Bangladesh. Islamic banks in these nations are in the can-also-exist mode or the system is accepting the fallacy of Islamic banking window/counter in conventional banks like Rooh Afza available in a beer shop! For example one may study the fate of Usury-free Banking Law and Islamic Banking System that became effective from 21 st March, 1984, under Bank Markazi Jamhouri Islami Iran (Central Bank of Iran). It does not prove that there is any question mark on the commitment of these governments in introducing the Islamic Banking. It simply shows that system has not yet fully developed to take on the world head on. The third point noted above is relevant. The reach of banking activity in many of the non-Muslim countries like that in the Muslim countries is very poor and a vast majority of population is not bankable. For example it is estimated that not more than 15 per cent of Indians have any bank account. In other words the overwhelming majority of Indians, say 85 per cent, are outside the net of banking activities they are not bankable. This is a precarious situation for any country because normally when a person becomes bankable he also brings his savings in the main stream of economy. As Islamic Banking is genuinely expected to attract savings of Muslims living in non-Muslim countries it will increase the bank-ability in a country and will have direct positive effect on the economy of the countries. There are many devout and practising Muslims who are averse to conventional banking because they want to avoid interest. Islamic Banking will be a boon to them and this will benefit both them and society. It is said that introduction of Islamic Banking in any country will serve as the drain through which petrodollar will flow through. As the economy of the members of Gulf Cooperation Council (GCC) countries in particular and other members of Organisation of Petrol Exporting Countries (OPEC) in general is rentier based the fund saved in these countries are mostly invested outside their own respective countries. Till 9/11 a major portion of those savings were being invested in the USA and other Western countries. But now the situation has changed and the Arab investors have started looking around for other possible opportunities. If Islamic banks are opened in non-Muslim countries, including India, such funds will be attracted and this will ultimately give a boost to economy and a fillip to the overall welfare of the states. The whole word it appears is vying for the savings available in GCC countries. The American and other Western countries are also encouraging these Arabs to provide them the much needed liquidity in order to ease them out of the global financial crisis. A new method to attract these funds is to assure that these can be invested in their countries in a manner that is Shariah compliant. Here we find a justification for the popularity of Islamic Banking and its sukuk schemes. There is no love lost for Islam or its Shariah but a gold rush to muster the funds in this manner.

CASE FOR ISLAMIC BANKING The Islamic Banking should be built upon its own ingrained features. At this stage when the non-Muslim countries are also interested in the idea there is a need to assess the past developments and adjust the system and make it appeal suitable to these countries. We are hereunder describing some such issues with the suggestion to consider the same before preparing a project profile of the case for non-Muslim countries.

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Islamic Banking in a non-Muslim country, including India, cannot grow on the strength of Muslims alone. It has to be made attractive for others too. The whole justification of Islamic Banking emanates from denunciation of Riba (interest). The original blueprints of the system as proposed by scholars like Dr. Nejatullah Siddiqi and Dr. Umer Chapra were prepared on the basis of replacing profit for interest. So we find that shirkat (partnership) and mudharabat (Sleeping partnership) plays the vital role in those proposals. The later development whereby murabaha (cost plus contract), ijara (leasing) and istiqna (hire purchase), etc. took the place of murabaha was not any improvement of the original proposition but a dilution of the core idea of riba being replaced by profit. Instead of approaching the challenges head on the practitioners of Islamic Banking have chosen the easy route. It is reported that the share of mark-up financial instruments of Islamic Banks is between 70 per cent and 86 per cent. (The Politics of Islamic Finance; Oxford University Press; P65-6). Such mark-up financing documents include trade finance by murabaha and investment finance by leasing. The overwhelming reliance on these financing instruments goes against the profit and loss sharing (PLS) system of Islamic economics. (Dialogue in Islamic Economics by Dr. Nejatullah Siddiqi; Institute of Policy Studies, Islamabad, and The Islamic Foundation, Leicester; P 320). There is the need to address this fallacy at the earliest and present the case of Islamic Banking with blemish free and unimpeachable theoretical stand. The focus of Islamic Banking should be serving the maqaside-shariah (higher goals of law in Islam) of preserving Faith, Life, Intellect, Posterity and Wealth. We may add on the list of our concern in this regard and add Poverty Alleviation and Preservation of Environment for Quality and Continuity of Life on Earth. There can be no other justification for introducing

any branch of the Islamic system if these basic concerns are not addressed properly. This is particularly true when we talk about Islam and project any derivative therefrom before the non-Muslim world. The Islamic Banking as practised till date has not to report home about in this area. Following excerpts from an article of Dr. Nejatullah Siddiqi highlights the dismal performance. (Obstacles to Islamic Economic Research; www.siddiqi.com/mns) Consider the current focus of Islamic economics on Islamic finance and dearth of Islamic economic literature on poverty removal, inequality and development. Among the billion plus Muslims of the world how many are bothered about banking and finance? How many of the over six billion inhabiting the planet care about Islamic finance, considering the fact that Islamic economics is for all? .... We have already noted the anomaly of Islamic economic research relegating poverty removal to the backburner and bringing investing rich peoples surpluses for making them richer to the fore. That is how the essence is overwhelmed by the peripheral. 3. The economy of GCC countries is mostly rentier based whereas in the majority of non-Muslim countries the Islamic Banking will have to deal with production based economy. The developments of systems are more towards the concerns of the former economy than towards the latter. Solutions for problems like equity participation, term lending, working capital finance, and cash-credit accommodation shall have to be addressed afresh. The solutions available till date are not sufficient for a vibrant economy like India. Banking is a part of total economy and the concerns of economy like justice, equity and growth should also be its concern. In other words banking should have its human and social face. Serving merely the interest of the investors will not suffice. For example the need in India today is to percolate economic activities to the masses. Schemes like self help groups and microfinance are the buzz words. Incentive for savings, arrangement of collecting tiny deposits, providing expertise, information, guidance and credits for entrepreneur development and taking care of persons in need like qarz-e-hasan (good loan) for emergencies and insurance coverage for contingencies are required under a single window. Islamic

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Banks in non-Muslim countries should provide that single window.