Interview
with Dr. Shariq Nisar, professor at Rizvi Institute of Management Studies and
Research. By ZIYA US SALAM
IN parts of western and central Uttar Pradesh, some
right-wing activists have read a communal tinge into the Narendra Modi
government’s demonetisation decision, which, they argue, has hurt the Muslim
community very badly. A section of the community does not hold bank accounts
and is in the habit of stashing away money as accrual of interest on savings is
prohibited in Islam. Although there are no statistics to support the argument,
many people believe that had a profit-and-loss sharing banking system, popularly
called Islamic banking, been followed, Muslims, especially the poorer sections
of the community, would not have been hit so hard.
Dr Shariq Nisar, a professor at Rizvi Institute of
Management Studies and Research, Mumbai, and former senior visiting fellow at
Harvard Law School, United States, thinks Islamic banking is a viable option
whose time has come. He has been advocating this kind of banking for the past
15 years. A financial expert and activist, Nisar recently addressed a seminar
on “Demonetisation and its Impact on Society”. He took questions from Frontline before
his talk. Excerpts:
There is a school of thought that looks at demonetisation through a
communal prism, gloating over the inconvenience it has caused to the Muslim
community.
Many people have been happy
not because they did not face any inconvenience but because they thought others
were more inconvenienced. Many upper- and middle-class people [who mostly pay
income tax] were happy because they thought politicians and bureaucrats, who had
become filthy rich, were the main sufferers because of demonetisation. There
was also the impression spread through social and other media channels that it
is terrorists and their backers who have suffered. Some said the Prime
Minster’s action was to target Muslims and their so-called shadow economy.
I don’t subscribe to the views
that this action [demonetisation] had any particular community in mind. But,
yes, I have no doubt that Muslims have been particularly affected by this
decision and that is because a whole segment of the informal economy has been
affected, of which Muslims are a substantial part.
I see some trends emerging
from this. We can force people to deposit their savings with banks but we have
not been able to impress upon banks to find ways to finance the general public
and entrepreneurs. Only 8 to 10 per cent of the people have been able to borrow
from the savings channelised in the banking system from across the country.
Could you elaborate on the
impact of demonetisation, especially on Muslims? Since many of them do not
maintain bank accounts, they are said to have been affected more than others by
“notebandi” (note ban).
Notebandi has affected the whole Indian economy, especially the
informal sector, which accounts for 90 per cent of the workforce. Since
Muslims’ proportion in the informal sector is relatively high, they are
obviously more affected. It is now becoming clear that the decision on notebandi did not foresee the possible adverse
consequences for a huge section of the population.
No doubt Muslims have been
badly affected, but it should be seen in the context of our economic structure.
According to latest government data, 80 per cent of the country’s households
have no regular wage earner or salaried person. It means 80 per cent of the
households are dependent on informal work for livelihood. Muslims in great
numbers are part of this informal segment. Various manufacturing units in north
India—the saree industry of Mau and Varanasi, the carpet industry of Bhadohi,
brassware of Moradabad, the lock industry of Aligarh, and other manufacturing
units in Firozabad, Agra, Khurja, Bareilly, Meerut, and Saharanpur—have a
disproportionately large number of Muslim workers, artisans and craftsmen.
Their livelihood has been affected as these are 100 per cent cash works. Cash
crunch has ruined these families. One might argue that demonetisation would
eventually increase minimum wages and compensate for the short-term loss
suffered by these people. But this is unlikely to happen because an increase in
wages will make businesses uncompetitive.
Manufacturing has almost
stopped at most places. It is not seen now because stocks are coming from
godowns, but we will know the real impact as we go along. However, it is not
that only workers are affected, business owners, too, have been affected but
they are relatively better off to withstand such a crisis.
I don’t think not having a
bank account has as much an impact as not getting work in view of the cash
crunch. After all, despite half the population of the country having no bank
account, almost the entire amount of money that was derecognised has come back
into the banking system. This is proof of the government’s lack of imagination.
It is reported that the government was expecting a windfall gain. I wish it had
trusted its own findings that not more than 5-6 per cent of black money is kept
in cash form; adjusting that much cash was not a challenging task, although it
came at some cost. I believe much of that money is already withdrawn from the
banking system and re-hoarded in the form of new currency.
More than 60 per cent of
Muslims do not earn more than Rs.10,000 a month. And only 6 per cent are in the
taxpaying bracket. It is argued that it is the weaker section that is the worst
hit by demonetisation. Are weaker sections in the Muslim community far worse
off than their counterparts in other religions?
Fewer than 4 per cent of the
people pay tax in India. Accordingly, Muslims’ proportion among taxpayers is
better in comparison with other communities. Yes, it is the weaker section that
has suffered the most. Almost all the banned notes have returned to the banking
system, but what about those who lost their daily earnings for shortage of cash
or had to spend a huge amount of their productive time in queues to withdraw
cash to meet their contingencies? I don’t see this as a Muslim issue but an
issue between the rich, affluent, resourceful people of this country and those
who are poor and vulnerable. There are no two opinions that the poor and
vulnerable have suffered the most.
In the wake of the
demonetisation crisis, is Islamic banking an idea whose time has come? More so
because Muslims are among the worst sufferers of demonetisation as many of them
do not keep their savings in banks to avoid accumulating “riba”? What are the
tools necessary to carry it forward?
Muslims refrain from using the
current banking system because it works on the basis of interest-based
dealings, which is prohibited in Islam. Many secular and democratic countries
have taken actions to address this issue. The Reserve Bank of India [RBI], too,
has been thinking positively on this, but it is mainly dependent on political
leadership to take the call. It is unfortunate that the Muslim community, while
being forced to move towards the formal economy, is denied an opportunity to
choose financial products that suit its ethical and religious concerns. It is
like someone is interested in equity and we tell them we will give them only
debt.
I look at Islamic banking
beyond the community, as a business concept that seeks to generate wealth
through sharing of risk and reward. It does not believe in lending money and
earning profit out of it. Our current banking system is modelled in such a way
that it finances those who are already rich. Only the risks are shared with the
general public when the banks need to be recapitalised. Islamic banking is more
suitable to develop entrepreneurship and it will help curb concentration of
wealth in the hands of a few.
We need to keep in mind that
Islamic banking is known by different names in different countries. For
example, Saudi Arabia, Turkey, Oman and Kuwait do not allow the name “Islamic”
to be used. On the other hand, the United Kingdom and Singapore prefer to call
it “Islamic” to attract customers. In Sri Lanka, Islamic banking was termed
“PLS” [profit and loss sharing] when the regulator allowed it in that country.
Similarly, in India regulators prefer to call it “interest-free banking” as the raison d’etre of Islamic banking is prohibition of
interest.
Some people who wish to evoke
passions find the term “Islamic” more suitable for their purpose. People could
be easily mobilised in favour of or against it.
The main idea behind the
concept of Islamic banking is that the capital provider must also share the
risk along with the entrepreneur, otherwise it becomes unfair for entrepreneurs
to endure both the enterprise and capital risk.
One must not forget that the
system of interest has indebted the entire global population and is the main
reason for concentration of wealth in the hands of a few. Globally, there are
five dozen people who own 50 per cent of the wealth. In India, 1 per cent of
the people have nearly 59 per cent of the country’s wealth. How come we have
reached such a pass? It is because our financial system allows capitalists to
earn without bearing any risk, and this comes at the cost of entrepreneurship
and employment, which leads to disproportionate distribution of wealth in
society. Today, the debt owed by all countries is more than 300 per cent of the
entire world gross domestic product [GDP], and this will lead to even greater
concentration of wealth in the years to come. Today, the most important
economic problem is not the lack of produce but lack of proper distribution of
wealth and that problem cannot be solved without proper and fair distribution
of risk in society. Islamic banking is a promise in that direction.
How viable can it be in a
secular country? There is a criticism that it can lead to an alternative
banking system, ultimately causing havoc to the existing system. Do you agree
with this?
Viability of this should not
be seen in the nomenclature used to identify it. It can be known by any name
that is acceptable to the public. The term Islamic banking was coined in the
1970s. It does not mean that Islamic banking was not practised throughout
Islamic history. It is high time the concept of risk and reward sharing was
introduced in our economy, otherwise our whole economic fabric will be
destroyed to produce a few billionaires.
It is childish to believe that
the introduction of Islamic banking will lead to alternative banking. In fact,
it will bring Islamic banking into the mainstream where the mainstream
financial players will offer products and services with the approval, guidance
and full monitoring of the regulators. Not allowing Islamic banking [especially
when it is already approved and practised in more than 75 countries] may
actually lead to the emergence of a parallel economy on the pretext that the
government is biased against a particular community and, therefore, not
providing an opportunity to its people. We must not forget that Islamically
oriented products are already approved by the capital market regulator
[Securities and Exchange Board of India] and people of various faiths have
widely subscribed to them. In fact, more non-Muslims in India have invested in
Shariah-compliant products than Muslims. We should also not forget that not
allowing this business will only come at the cost of business opportunities to
our own financial institutions. After all, why do multinational financial
institutions such as HSBC, Citi, Deutsche, and BNP Paribas have Islamic banking
subsidiaries and windows? Because they do not want to miss business
opportunities. They are doing Islamic finance business across the world. In the
globalised world, restricting the business of financial institutions is bad
economics.
A decade ago, Dr Raghuram
Rajan, who was RBI Governor until a few months ago, headed a committee set up
by the Planning Commission on financial sector reforms. The committee had
recommended Islamic banking.
Yes, the committee addressed
two important concerns. One, it acknowledged that Islamic banking was already
practised in India under different formats and expressed the view that a formal
approval of this concept would help improve financial inclusion. The committee
also noted that introduction of interest-free banking would not bring any
systemic risk to the Indian financial system. This was an important statement
in view of the concern raised by certain sections about Islamic banking.
The RBI Act and the Banking
Regulation Services Act prohibit setting up of Islamic banks. Only an Act of
Parliament can allow Islamic banking, which is not likely with the current
dispensation at the Centre. Is there a way out?
No Act or regulation prohibits
Islamic banking in the country. This was [and may be is] the view of the RBI
when it was added as an additional respondent in the public interest litigation
petition filed by Dr Subramanian Swamy against the Kerala government-promoted
Islamic finance through a non-banking financial company [NBFC], Al-Baraka
Financial Services Limited. The Kerala High Court, after hearing all the
arguments, rejected the PIL filed against the company. The company is
functioning as Islamic Finance NBFC with the approval and guidance of the RBI.
The Deepak Mohanty Committee
has recommended the introduction of interest-free banking and has also
identified products that will work under existing regulations. It has also
highlighted areas where Islamic banking principles cannot be accommodated under
existing regulations. But I agree that introduction of Islamic, or
interest-free, banking, is a political decision, without which the RBI will not
proceed. I also agree that it is unlikely that the government will do something
for a political segment that does not vote for it. The current dispensation [at
the Centre] will not do anything to upset its core constituency.
Is it not necessary to tell
the masses that Islamic banking can be used by people of all faiths in a
secular country like India?
Yes, you are absolutely right.
It is actually a fact that across the globe, people of various faiths have
chosen to use Islamic banking facilities and services mainly because they do
not see it as a product for a particular community. Rather, they look at its
features and use it if it is found suitable. Even in India, Shariah indices are
offered and managed by both the National Stock Exchange and the Bombay Stock
Exchange. Many investors, wealth managers, brokers, and mutual funds use these
indices for managing investments. Indian Shariah-compliant mutual fund schemes
[approved by the SEBI] have more non-Muslim investors than Muslims. These are
all financial products and the regulators make sure that they are not offered
exclusively to any particular group or community.
Source | FRONTLINE Magazine | February
3, 2017
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