The Reserve Bank of India (RBI) has said it cannot disclose the Finance Ministry's response about the introduction of Sharia banking in India. The RBI had earlier proposed opening of Islamic window in conventional banks for gradual introduction of Sharia- compliant or interest-free banking in the country. RBI was asked to give the copy of the letter sent to it by the ministry on the recommendation of its Inter Departmental Group (IDG) regarding Islamic banking.
The central bank had sought response from the Department of Financial Services (DFS) under the finance minister whether their letter can be disclosed under the Right to Information (RTI) Act. As advised by the DFS, the disclosure of information would cause a breach of privilege of Parliament or the state legislature.
#India will soon have Islamic Banking facilities. The Saudi Arabia-based Islamic Development Bank will start its operations from Gujarat soon. During Prime Minister Narendra Modi's visit to UAE in April last year, the Indian Exim Bank had signed a memorandum of understanding with IDB for a $100 million line of credit to facilitate exports to IDB's member countries. The Reserve Bank of India had proposed opening of an Islamic window in conventional banks for introduction of Sharia-compliant or interest free banking in the country. The proposal was taken up to ensure financial inclusion for those sections of society which remain excluded due to religious reasons.
Before handing over his charge to present Reserve Bank of India (RBI) Governor Urjit Patel, former Governor Raghuram Rajan had proposed working with the Government to introduce Islamic Banking. Most recently, Union Finance Ministry said that Islamic banking was not relevant any more as the Government has already introduced several programmes for all citizens towards financial inclusion. Finance Minister Santosh Kumar Gangwar said various legal changes are needed if even limited products were to be introduced under Islamic banking. It is estimated that 180 million Muslims in India are unable to access Islamic banking because of non-availability of interest free banking. RBI in its report had said it would explore to introduce interest-free banking products in consultation with the government, but before the consultation could be held, the Government of India derailed this whole process.
It seemed as if the path had been cleared for the introduction of Islamic finance in India after the country’s central bank made a proposal to launch Islamic banking windows at conventional banks. With two crucial effects awaiting: Firstly, greater financial inclusion of unbanked Indians, not necessarily only around 170mn Muslims, but also those interested in ethical banking, and, secondly, an increased influx of investments from Muslim regions, namely the Gulf, into India.
However, the proposal got rebuffed in December by the Indian finance ministry which, in a surprising declaration, argued that Islamic banking was “not relevant” any more in achieving the objectives of financial inclusion as the government had already introduced other programmes for all citizens towards that end.
India’ Minister of State for Finance Santosh Kumar Gangwar also said that a number of legal changes would become necessary even if limited Islamic finance products were to be introduced, which would result in “numerous legal hurdles.”
The Islamic Development Bank (IsDB) had agreed to provide USD 500 million loan to part-finance the USD 15 billion Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipeline project.
IsDB has expressed interest in financing the project not just on Turkmenistan's territory, but in Afghanistan and Pakistan, too. The TAPI pipeline will have a capacity to carry 90 million standard cubic metres a day gas for 30 years. The project had been planned to become operational in 2018, but it is unlikely to see the light of day before 2022. The four nations to the project in April this year had signed an investment agreement in Ashgabad. The technical study of the TAPI project, done by Penspen, has estimated that it will take over six years to complete from the start of the FEED process.
The Reserve Bank of #India (RBI) has proposed opening of "Islamic window" in conventional banks for "gradual" introduction of Sharia-compliant or interest-free banking in the country. Both the Centre and RBI are exploring the possibility of introduction of Islamic banking for long to ensure financial inclusion. The central bank's proposal is based on examination of legal, technical and regulatory issues regarding feasibility of introducing Islamic banking in India on the basis of recommendation of the Inter Departmental Group (IDG). RBI has also prepared a technical analysis report which has been sent to the Finance Ministry.
Two successful investment funds have facilitated the Secura Investment Management, the first SEBI registered and Shariah compliant venture capital fund, to come out with a third fund – Realty AIF – with a target to raise 200 crore. The first scheme Secura India Real Estate fund Domestic Scheme 1 has completed with a pay back record of 18%, while the second fund is in the investment stage and its tenure will be over next year. Managing Director M.A.Mahaboob said funds will be invested in equity modes, quasi-equity and equity related instruments, investment in a co-investment capacity with development companies and other promoters. The minimum investment under the scheme is 1 crore which is to be paid in instalments in three years with a down payment of 10% of the capital commitment.
Emirates NBD Asset Management (Emirates NBD) has entered into a partnership agreement with UTI International (UTI) to launch the Emirates Islamic India Equity Fund. The fund will expand Emirates NBD’s global portfolio and offer investors exposure to Shariah compliant Indian equities. Emirates NBD is looking to develop a portfolio of global funds with leading international partners, and its latest collaboration with UTI forms part of this strategy. Leo Puri, managing director of UTI, said the new fund presents an excellent opportunity for GCC investors to realise strong returns on Shariah compliant Indian equities. The rationale for the agreement is driven by Emirates NBD’s strong interest in India as a growth market. According to a recent McKinsey report, India is expected to rank in the top five global economies by 2020 and to reach the top three by 2030.
#India’s first fully Sharia-compliant fund launched its third investment fund, Realty AIF 1 (Alternative Investment Fund). The fund is meant for the real estate sector with IL&FS Trust Company acting as trustee for the fund and Secura Investment Management as promoter. According to managing director Mehaboob, the fund will raise 200 crore and the minimum investment under the scheme is 1 crore. The tenure of the fund is seven years from the final closing. Mehaboob added that an annualised RoI of 15-20% is expected, with a profit share post hurdle of 80:20 with catch-up. Company officials said the investments under the fund will be made in the modes of investment in equity, quasi-equity and equity-related instruments. Other modes include investment in a co-investment capacity with development companies or other promoters of a portfolio company, and investment in special purpose vehicles created by the company.
In #India Jammu and Kashmir Bank said it was ready to offer Islamic banking, if the Reserve Bank of India approved the move. The bank's newly-appointed chairman Parvez Ahmad said there was a strong demand for such banking service in Kashmir but RBI would need to examine the proposal. RBI has recently suggested to explore the modalities of introducing interest-free banking products in the country in consultation with the government.
In #India Jammu and Kashmir Bank is willing to offer Islamic banking to its customers. Chairman Parvez Ahmad said there was great demand for Islamic Banking in the state, so the bank would examine the proposal after taking the Reserve Bank on board. As far as the JK Bank positioning is concerned, it has 63% share on the asset side, 62% share on the deposit side, out of 862 branches, 745 are in the state, out of 1030 ATMs, 950 in JK state, 90% of the population is dealing with JK Bank. Ahmad added that other banks were only offering products and services, JK Bank was more concerned about the development of JK state as a whole.
Muslim NGOs in India will be able to make use of Islamic Development Bank’s Awqaf Properties Investment Fund (APIF) to develop their endowments and generate funds for their various community development projects. According to Zafar Javeed, IDB’s national convener for India, APIF is in the process of identifying viable endowment projects. Javeed commended IDB group for financing about 300 educational and health-related projects across India over the past three decades. He said that the IDB was a big blessing for the Muslim community in India and there were many projects in the pipeline awaiting IDB aid. Referring to ongoing efforts to introduce interest-free banking in India, Javeed said former RBI governor Reghuram Rajan had hinted at introducing the system to achieve inclusive development.
The Islamic Development Bank (IDB) is getting the final touch in before setting up office in India. With introduction of Islamic banking, Indian government will certainly gain diplomatic upper hand to make financial dealings with Muslim dominated nations. Islamic Banking will clearly ameliorate the deplorable condition of the poor and marginalized segments of society. However, it won't be very surprising to see if this banking system is turned into a political issue. Certain parties might abhor the use of the word "Islamic" and could term it as anti-Indian. They might argue that the very concept of Sharia banking would go against the secular fabric of the country.
India's first Islamic banking service began on Friday in Maharashtra’s Solapur district. Subhash Deshmukh, a BJP MLA from Solapur and state cooperation minister has launched Sharia-compliant Islamic banking. The BJP leader said that the bank has 9 branches, including 8 in Solapur and 1 in Pune, and all of them would get a separate counter for Islamic interest-free deposits and loans. Deshmukh added that other financial institutions and banks in Maharashtra should also follow and adopt this model. Interest-free deposits will be accepted from Muslims and non-Muslims at zero rates of interest to ensure their financial inclusion.
In #India Maharashtra state minister Subhash Deshmukh has launched Sharia-compliant Islamic banking. Interest-free deposits will be accepted from both Muslims and non-Muslims and distributed to the needy at zero rates of interest to ensure their financial inclusion. So far, the Lokmangal Cooperative Bank has distributed Rs 2.50 lakh to poor Muslims and the minister will now call on other banks to follow suit and adopt this model. Deshmukh said that depositors, however, will not be able to withdraw their deposits prematurely as the money will be lent out.
The Reserve Bank of India’s proposal to tap Islamic banking to provide banking services to Muslims - who are averse to a interest-based model, has raised hope of this system becoming a reality in the near distant future.
According to Dr D.K. Batra, marketing professor, IMI, New Delhi, a large section of Muslims in India did not access banking services on religious grounds due to the element of interest which is prohibited in Islam. So it is interesting that “RBI will explore the opportunity to offer interest-free banking in consultation with the government to open Islamic banks,” he said. This requires a law to be passed, and therefore legislative support, since it concerns net interest margin for banks. The Islamic finance has not grown fast enough as the concept faced opposition from political parties, said Dr Batra.
The Reserve Bank of India (RBI) has said it will work with the government to introduce interest-free banking, as part of its efforts to improve financial inclusion. The RBI’s proposal paves the way for introduction of Islamic finance in India. In March 2015, State Bank of India (SBI) deferred the launch of a Shariah-compliant equity mutual fund at the last moment. SBI maintained that the decision was a commercial call, but there was speculation that the decision had to do with political pressure. Senior BJP leader Subramanian Swamy is among the most vocal critics of Islamic finance, arguing that it could encourage religious conversion and also open channels for terrorist organisations to channel money into India.
India's central bank has proposed working with the government to introduce interest-free banking. The Reserve Bank of India (RBI) made the proposal last week, as departing central bank governor Raghuram Rajan hands over the reins to Urjit Patel. Development of Islamic finance has been slow in India because of strong opposition from bureaucrats and politicians from the ruling Hindu-nationalist Bharatiya Janata Party. An estimated 180 million Muslims have been unable to access Islamic banking because of laws that require banking to be based on interest. The RBI said it would explore introducing interest-free banking products in consultation with the government, a key detail as this opens the prospects of supportive legislation.
Vishwa Hindu Parishad expressed reservations over the Islamic Development Bank’s plan to open its branch in India. VHP joint general secretary Surendra Jain is currently attending a two-day meeting in Ahmedabad to discuss various issues. He said they will also deliberate on the strategy to oppose the opening of the new branch. Although IDB recently announced that it will open its first Indian branch in Ahmedabad, VHP insists that such banks are against the Constitution and banking norms set by RBI.
Interview with director and head of Islamic Corporation for Development's India operations.
For the first time, the Jeddah-based Islamic Development Bank has forayed into a non-member country by announcing setting up of a non-banking financial company in India through its 100% subsidiary Islamic Corporation for the Development of the private sector. Based on the Islamic principle of not charging interest on loans, ICD will operate through a registered office in Mumbai, with prominent businessman from Gujarat, Zafar Sareshwala, heading its India operations as director. In an interview with Vinay Umarji, Sareshwala talks about how the NBFC will play a catalyst for small businesses by sharing their profits and losses instead of charging interest on finance extended.
What kind of entity is Islamic Development Bank setting up in India? How will it function?