Attempts to set up a Sharia fund in the country have been stymied, and Sharia-loving politicians are venting their ire.
The State Bank of India (SBI) has cancelled the launch of a Shariah-compliant equity mutual fund, triggering a diatribe against the decision.
Till the previous UPA regime was in power, there had been sustained pressure on India to open its doors to the concept of Islamic finance and facilitate a market for “Shariah compliant financial products”.
The fund was designed to invest in Shariah (Islamic law) compliant companies.
A commercial spin is being sought to be put on the cancelling of the fund’s launch. Dinesh Kumar Khara, managing director and CEO of SBI Mutual Fund, said that the SBI’s decision to defer the fund launch, originally planned in December, was a “commercial call”.
“We needed to study the product a little more,” Khera said. But politicians from the ‘secular’ dispensation aren’t buying this argument. Congress’ member K. Rahman Khan had on Wednesday alleged in Parliament that the decision was due to political intervention.
Those familiar with the development say the decision was prompted by political pressure after BJP leader Subramanian Swamy wrote a letter to Prime Minister Narendra Modi, asking Modi’s intervention to stop the launch of the MF product.
The authenticity of this letter or its source is still to be verified. In the letter, Swamy is said to have argued that permitting Islamic finance will be politically and economically disastrous for the economy.
Dr. Subramanian Swamy has been long targetting any move towards Shariah finance.
The SBI Shariah fund, which had received the market regulator SEBI’s go ahead was cancelled at the last moment, according to Abdur Raqeeb, general secretary of the Indian centre for Islamic Finance.
“A few days before the launching date Dinesh Kumar Khara had invited me and he was very sure of investment and asked us to support it. But later it was suddenly cancelled (due to political intervention),” said Raqeeb.
In October 2012, Dr. Swamy had said in an interview allowing Islamic finance would also lead to religious conversion and fund terrorism.
“Since such organizations will encourage only Muslim customers, the international Muslim organizations (may) want to use this as a tool to encourage people to convert to Islam,” Dr. Swamy had said.
The question on whether India should allow Islamic banking or not have been debated in the country for long, but the attempts made by several Islamic institutions and private groups to seek recognition for the model haven’t succeeded due to regulatory constraints and opposition from local politicians, who argued that permitting Islamic banking will open for inflow of terror funding to the economy.
Islamic banking is a world removed from conventional banking. It does not allow payment or receipt of interest and it does not permit investment in matters that are considered sinful — like manufacture of alcohol, gambling and pornography.
There is no room for deposits in the Islamic model, which accepts only investments, which, more or less, make banking a venture capital activity. There are different financial products such as sukuk bonds offered under Islamic banking.
In mid-last year, the Reserve Bank of India (RBI) has begun the process of reviewing regulations on Islamic banking in India. The central bank has set up an internal committee to examine the matter. But, there has not been much progress in this matter.
The RBI had set up a three-member panel comprising senior RBI officials, Rajesh Verma, a deputy general manager, department of banking operations, Archana Mangalagiri, general manager, non-banking supervision and Bindu Vasu, joint legal adviser.
Back in 2007, an RBI-appointed working group under the then executive director, Anand Sinha, had ruled out Islamic banking in the country, saying current regulations do not permit the model.
In 2012, arguments for Islamic banking received a boost when the National Minorities Commission, under its then chairman Wajahat Habibullah, began strongly pushing for it with the Finance Ministry.
But because of its “interest-free” model, the RBI, during the governorship of D. Subbarao, ruled it out under existing banking laws. Matters rested there until August 2013, when the RBI in a surprise move, allowed a non-bank finance company in Kerala— the Cheraman Financial Services — to operate in Shariah-compliant mode, which was seen as a shift in stance by the RBI towards the idea.
Globally, Islamic banking is prevalent in many countries with global lenders such as Standard Chartered and Hongkong and Shanghai Banking Corporation running Islamic banking divisions, along with conventional banking operations.
According to the UK Islamic Finance Secretariat, a part of The CityUK, the global market for Shariah-compliant assets reached $1.3 trillion in 2011 from $509 billion in 2006.
Another report from Ernst & Young (E&Y) said the assets of Islamic banks expanded at an average rate of 17 percent per year between 2008 and 2012 — thrice as fast as the rate at which conventional banks grew over the same period.
THE LETTER:
December 2, 2014.
Shri Narendra Modi,
Prime Minister,
South Block,
New Delhi.
Dear Narendrabhai:
I am enclosing with this letter a write up on the State Bank of India, a public sector bank of the country which has decided to open a mutual fund that will comply with Islamic laws i.e., it will be a Sharia compliant mutual fund.
Earlier, the Government of Kerala had tried to introduce a Sharia compliant bank which I had challenged in the Kerala High Court by way of a Writ Petition, and succeeded in preventing it from being set up in India after the Reserve Bank under the then Governor Dr. Y.V. Reddy had filed an affidavit stating that under Indian secular laws and under the Reserve Bank Act, Sharia compliant is not permitted.
Now by another door the same is being attempted regretfully because the present Governor of RBI who is an appointee of the UPA, and for some inexplicable reason he is continuing as Governor of the Reserve Bank of India, namely, Dr. Raghuram Rajan. He is openly encouraging the formation of Sharia compliant financial institutions which in my opinion will be politically and economically disastrous for our country.
Hence I urge you to intervene in this matter and stop the SBI and the RBI from engaging in such adventures. I trust that you will ensure that the dubious funds in the Middle East do not enter our country through legally baptised channels of Sharia compliant financial institutions.
Yours sincerely,
(SUBRAMANIAN SWAMY)
