The Jammu & Kashmir Bank on Monday said there is a huge scope for Islamic banking in the state, but the concept need to be understood in its right perspective to make it acceptable. The Reserve Bank of India (RBI), banking regulator, has been hesitant so far to accept the idea of Islamic banking citing that it doesn't fit in well with the existing banking regulations. The RBI, however, has initiated discussions with various stakeholders on this subject.
Islamic banking is practiced in certain countries. The model follows Shariah law and differs from conventional banking on two main accounts since under this, payment or receipt of interest is prohibited. Also, it does not permit investment in matters that are considered sinful - like manufacture of alcohol, gambling and pornography.
Besides, the model doesn't accept deposits, only investments, which, more or less, make banking a venture capital activity.
“The research and the academic exercises carried out on the subject in the state shows us that there is massive scope for Islamic banking in the state unfortunately the issues has not been understood in its right perspective,” Parvez Ahmad,the newly appointed Chairmen of the Jammu and Kashmir Bank, told Firstpost.
"Some sections of out of society, not just in the state, but in the mainland India had remained financially excluded for religious reasons that prevents them from using banking services with elements of interest. Even the RBI had said this,” Ahmad said.
“But it is a regulatory issue. Any such permission will have to come from the RBI for which the Parliament has to enact law,” he said.
Ahmad, the incumbent Executive President of J&K Bank, is the first in-service and second in-house Chairman and CEO of the bank. He is senior most Executive President of J&K Bank with 18 years of experience in banking and Financial Services.
Ahmad’s assertion is echoed by Islamic scholars and a section of people in the banking industry, who say in the Muslim majority state of Jammu and Kashmir, people will naturally opt for Islamic banking.
Last year, with a view to create awareness Mehboob Makhdoomi, a Harvard trained economist set up Islamic Banking Kashmir- a research and advocacy group to educate the masses about Islamic finance. Makhdoomi said Islamic Banking had tremendous scope in the state but is misunderstood concept in the country.
“It is not merely about Interests but much more than that. We have carried out a district survey in major districts of Kashmir and the number of people interested in interest-free banking is mind-boggling,” Makhdoomi said.
Ahmad said the bank is yet to take up the issue formally with the central bank. "We have not given a serious thought to it. We will examine this idea and take up with RBI," he said.
Mubashir Hassan, an economist and religious scholar based in Srinagar says Riba (interest) is strictly prohibited in Islam. Prophet Mohammad has classified Riba to be one of the seven deadly sins. Even calculating, counting, witnessing, keeping its records or giving of interest has been prohibited.
“The backbone of present world economy is banking, which is based on interest model. Obviously it is difficult to remain aloof from it. Anyway the present banking system has hemmed us in such a manner that almost every one of us, willingly or unwillingly, gets involved in it. The interest based banking is based on exploitation, the depositor is safely enjoying the hard work of others and in case there occurs any accident/loss that has to be borne by the poor borrower,” he said.
In its 2015-16 annual report, the RBI had said that it will discuss the possibilities of Islamic banking with the government.
"Towards mainstreaming these excluded sections, it is proposed to explore the modalities of introducing interest-free banking products in the country in consultation with the government," the RBI report said.
Religious leader and Grand Mufti Bashir-u-Din Ahmed said when banks in certain countries have adopted Islamic Banking as away of life, in India this has not happened as banking regulations do not permit the model.
"In our banks, people have apprehension that their money is used to interest business and it is also not allowed in Islam. If tomorrow, the RBI decides to give it a go ahead, then you will see 99.5 percent of people adopting Islamic Banking,” said Bashir-u-Din.