By Murtaza Ali Khan
Financial inclusion is the key to making India an economic superpower. Former RBI Governor Raghuram Rajan had formed a Committee on Comprehensive Financial Services for Small Businesses and Low Income Households, back in September 2013 under Nachiket Mor, which essentially studied various aspects of financial inclusion in India. The idea was to provide all low-income families and small businesses with a much-needed access to the essential banking services. Not only would this ensure that the day-to-day financial requirements of these families and businesses are met but would also help maintain the circular flow of income in the economy by turning savings into investments. It is well known that the banks charge way less interest rate than private moneylenders and financers. Recently, RBI proposed to introduce Islamic banking in India in a bid to ensure financial inclusion of those Muslims who thus far have remained excluded owing to religious reasons. At a time when PM Modi has been quite vocal against a dated Sharia practice like the ‘triple talaq’, it is a bit perplexing to see the central bank endorse another Sharia practice.
Sharia (Islamic law) prohibits lending or borrowing money on interest. The late twentieth century saw emergence of many Islamic banks which introduced banking practices consistent with the principles of Sharia. Logically speaking, the reason Islam is not fine with the idea of interest is because pawnbrokers would exploit the poor and the needy and make their lives miserable. Also, it is supposedly money made without actually working for it. But, Islam doesn’t prohibit moneymaking though various forms of trade/investment. Now, every progressive religion mustn’t lack flexibility. When the banks give you interest they are actually not exploiting the poor. The same money is used to give loans for a rainbow of activities. By virtue of lending money, the banks are actually contributing to the country’s growth and development as opposed to the usurious pawnbrokers, whose sole aim is to make unjust, exploitative gains at the expense of the poor and the needy.
As a matter of fact, the interest that the banks give is very different from trade. It’s like giving our money to someone who is investing it on our behalf. Even while borrowing loans, the interest rates that we pay are carefully determined by the RBI and hence can’t be exploitative in nature. So this pretty much obviates the need for Sharia banking. Sharia banking may have been quite famous in Islamic countries but then so has been the notion of Islamic cola. It is something that in effect isolates the Islamic world from the rest of the world and inevitably it kills the spirit of free economy and is actually akin to favoring someone over the other just on the basis of religion. Just like in the case of Islamic cola, Muslims are compelled to use the services provided by a select few like in an oligarchic setup as oppose to the norms of a free market. Also, as opposed to the popular belief, Islamic banking is not a safe haven bubble as obvious from the impact on Islamic institutions the world over following the collapse of Lehman Brothers.
From the perspective of religion, Islamic finance is based on the belief that all forms of interest are prohibited. But, an Islamic school of thought led by Syed Ahmad Khan talks of the difference between prohibited ‘riba’ or ‘usury’ and the legitimate ‘interest’. Also, a noted scholar at Al-Azhar University (a renowned Islamic university in Cairo, Egypt) has stated that bank interest is not un-Islamic. Moreover, historically speaking, no Islamic government has ever enacted any law against usury.
Keeping all this in mind, it is important that the government must at all cost avoid taking any unsound, potentially divisive initiatives like opening counters for Sharia banking, and, on the contrary, should try and spread awareness about the importance of conventional banking in ensuring financial inclusion.
Murtaza Ali Khan is an independent film critic and blogger based out of Delhi, India. He is the editor-in-chief of A Potpourri of Vestiges and a regular contributor to Huffington Post, Wittyfeed, Jamurra Blog, etc.
Cafe Dissensus Everyday is the blog of Cafe Dissensus magazine, based in New York City, USA. All materials on the site are protected under Creative Commons License.
Read the latest issue of Cafe Dissensus Magazine on ‘The Idea of the University’, edited by Dr. Debaditya Bhattacharya, University of Calcutta, India.