It was 10 am, which meant that the time for transactions had officially begun. On a weekday morning in mid June, Anjum, a 42-year-old jewellery seller, arrived at the Al-Khair Cooperative Credit Society’s Delhi branch, in a tall building in Okhla. Clothes-lines ran through the small office, which doubles as a makeshift guest house for visitors from far-off places who need a place to stay.
With 13 branches across India, Al-Khair is an Islamic-finance organisation; it operates according to an ethical framework inspired by Islamic texts and values. Anjum had arrived at the Delhi branch in search of a small loan of Rs 15,000, to purchase raw materials for her jewellery business. She chose to approach Al-Khair instead of a conventional bank, she told me, because conventional banks “take much longer to hand out loans,” and “demand all sorts of written files from poor people.”
Reyaz Ahmad, the branch manager at Al-Khair’s Delhi office, sat down with Anjum to discuss her request. Throughout their conversation, Ahmad highlighted the fact that Al-Khair, like nearly all Islamic-finance outfits, does not charge interest. “Normally, in the case of interest, bankers try to reap benefits—which we don’t do,” Ahmad told me. “Sharia law encourages us to minimise monetary benefits.”
Al-Khair also offers certain products that conventional banks do not, such as hajj accounts—deposit accounts for Muslims planning to go on the pilgrimage to Mecca. The organisation is not technically a bank, though it performs many of the same functions as one. Banks must be registered with the Reserve Bank of India, which does not currently recognise Islamic finance. Instead, Al-Khair is registered under the Multi-State Cooperative Societies Act, 2002, which allows it to function as a cooperative. It is jointly owned and democratically controlled by its members. The profits the organisation earns—which are split among the members—come from the one-time service fee that people pay on loans.
“If people are unable to repay us, or delay their repayments, we are more flexible and understanding about it,” Ahmad said. “The committee”—Al-Khair’s leadership body—“often pitches in for those who cannot pay service charges themselves.” For Al-Khair’s core team, he said, “because our expenditure is so little, and this is a voluntary effort, our salaries are also very meagre. We do it out of our own volition, rather than for the money.”
I spoke to several people who are involved with Islamic finance in India. From them, I learnt about the many efforts being made to get the Indian government to recognise Islamic finance in a formal capacity, as has already been done in over 60 countries, including the United Kingdom, Indonesia, Switzerland and Malaysia. While efforts to lobby for Islamic finance have been robust, and developments in the past decade have at times seemed promising, success for its advocates remains elusive.
H Abdur Raqeeb is the general secretary at the Indian Centre for Islamic Finance, which has spearheaded lobbying efforts for Islamic finance in India. I met Raqeeb at the centre, a large space with an extensive library, also located in Okhla. Raqeeb, who is 68 years old, spoke with a sense of quiet urgency. “According to the Islamic principle of zakat, alms are to be provided by the rich to the poor. But in the case of interest, as exemplified by traditional banking systems, we see money only going from the poor to the rich,” he told me. But “it is not Muslims alone” who believe in the fundamental values of Islamic finance, Raqeeb said. “Within the scriptural ambits of almost all religions—take Christianity, Judaism, or Hinduism—interest and usury have been abhorred.”
While the precepts of Islamic finance are not universally agreed upon, they generally involve interest-free banking and the prohibition of investment in items or activities deemed un-Islamic, such as gambling, prostitution, alcohol and pornography. In addition to this, many people believe that sharia prohibits speculation, so trading that is considered overly risky or uncertain is generally proscribed.
According to Raqeeb, “Islamic finance gained traction globally” after the US sub-prime mortgage crisis of 2008, when many big banks, after taking on excessive risk, had to be bailed out by the government. After this, he said, Islamic finance found supporters all over the world, from the Vatican—which issued a paper endorsing some of its practices—to India, where MS Swaminathan, an agricultural geneticist revered as the “father of India’s Green Revolution,” said that interest-free banking could help address the problem of farmers committing suicide due to unmanageable debt.
In 2005, the Reserve Bank of India constituted the Anand Sinha Committee to explore the potential for implementing Islamic finance in Indian markets. After a year-long inquiry, the committee published a report that concluded it would be unfeasible to implement Islamic finance in India because it would require too many new regulations and amendments to the Banking Regulation Act.
In response, the Indian Centre for Islamic Finance alleged that the committee, which had not included any experts on Islamic finance, had not substantively looked into the matter. “The Anand Sinha Committee developed a rather superficial analysis of the Islamic-banking system,” Raqeeb said. “We commented that it was not a fair report, and spoke to the RBI, the finance ministry as well as members of parliament about our problems with it.”
In 2008, the planning commission constituted the Committee on Financial Sector Reforms, headed by Raghuram Rajan—then a professor at the University of Chicago—to advise the government on economic priorities. The committee’s report contained remarks that pointed towards the need for Islamic finance, saying, “Certain faiths prohibit the use of financial instruments that pay interest … [which] results in some Indians … not being able to access banking products and services due to reasons of faith.”
That year, Islamic finance found another votary in Thomas Isaac, the finance minister of Kerala, who declared that the lack of sharia-compliant banking options meant that Muslims were disproportionately inactive in the state’s economy—their wealth was either lying idle, parked in banks or invested in gold and real estate. To address this, Isaac started Al-Baraka Financial Services: a non-banking financial corporation in Kerala worth Rs 1,000 crore.
This was controversial. In 2009, Subramanian Swamy, then the president of the Janata Party, filed a petition against Al-Baraka in the Kerala High Court, arguing that sharia-compliant products were not permitted under Indian law. Following a prolonged debate, in 2011, the Kerala High Court dismissed Swamy’s petition, ruling that Islamic finance did not violate Indian banking regulations and was inclusive of people from all communities.
Swamy continued to challenge Islamic finance, however. In 2014, the State Bank of India was set to launch what it called a Sharia Mutual Fund, which would invest in sharia-compliant companies. This, however, was deferred at what Swamy called the “eleventh hour,” because he wrote a letter of concern to Prime Minister Narendra Modi, arguing that Islamic banking would be “politically and economically disastrous” for India. “I trust you will ensure that dubious funds in the Middle East do not enter our country through legally baptized channels of Sharia compliant financial institutions,” he wrote.
Not all leaders were so resistant to Islamic banking. After the Kerala debate, Raqeeb said, the Indian Centre for Islamic Finance began a dialogue with the RBI. “Several meetings were summarily undertaken with Dr Raghuram Rajan”—by then the RBI governor—“who was very understanding, and recommended the introduction of interest-free banking windows,” a compromise that would allow people to access certain sharia-compliant products in conventional banks. The RBI submitted a proposal to the finance ministry in February 2016, stating that “Islamic banking may be introduced in India in a gradual manner.” The government, however, took no action on this proposal.
On 7 December 2016, Chandrakant Khaire, a member of parliament from the Shiv Sena, submitted a plea in the Lok Sabha expressing disagreement with the RBI’s proposal. On 9 December, the finance ministry effectively ruled out the introduction of Islamic finance. In a written reply to the Lok Sabha, Santosh Kumar Gangwar, a minister of state for finance, contended that the RBI’s suggestions had “no relevance,” because the government had already introduced “other means of financial inclusion for all its citizens, like the Pradhan Mantri Jan Dhan Yojna, Pradhan Mantri Suraksha Bima Yojna, Pradhan Mantri Jeevan Jyoti Bima Yojna, Pradhan Mantri Mudra Yojna, etc.”
Khaire “thought that the model would be beneficial to Muslims only, and that Hindus would not partake in interest-free finance, which is absolutely not the case,” Syed Zahid Ahmad, the founder of Economic Initiatives, a Mumbai-based organisation that campaigns for interest-free financial products, told me over the phone.
This problem—of Islamic finance being seen as a threat to the country’s secular fabric—has dogged its supporters for years now. If Islamic finance were “presented as an attempt to bring ethics into the existing banking and financial system,” Syed told me, “there would have been more acceptance from majority community leaders.” He said that Economic Initiatives, as well as other Islamic-finance organisations, have lately been avoiding the word “Islamic” to describe their programmes, preferring terms such as “interest-free and equitable financing,” “micro equity” and “mutual insurance.”
Vishwas Vyas occupies an interesting position in this debate. For 15 years, Vyas has served as vice president of the Madhya Bharat outfit of the Rashtriya Swayamsevak Sangh’s student wing, the Akhil Bharatiya Vidyarthi Parishad. After researching Islamic finance during his MPhil degree in 2005, Vyas found it to be the best model for economic development, and has been delivering lectures across India to spread awareness about it for over a decade. “The basis of Islamic finance constitutes moral and ethical values, whereas the general banking system is based on market-driven powers such as interest,” he told me over the phone. Vyas also said that Islamic finance would help the national economy. “India is a low-capital country,” and introducing such programmes could “attract investments from the Gulf and from the Muslim world through Islamic-banking windows,” he said. Financial inclusion, he added, is also “an important aspect, because many Muslims have not been involved in the banking system due to religious issues.”
In December 2016, Vyas organised the 62nd Rashtriya Adiveshan, a four-day event in Indore attended by thousands of students and several high-ranking leaders from the RSS and ABVP. The ABVP held a session on Islamic finance, headed by Vyas.
Supporters of Islamic finance have plans to forge ahead. The Indian Centre for Islamic Finance’s plan is currently “to contact the Prime Minister of India as well as the finance minister to re-launch the State Bank of India Sharia Equity Fund, which the finance minister promised to relaunch with another suitable name, instead of sharia,” Raqeeb said. “Several members of parliament have suggested different descriptors for the soon-to-be-revamped scheme, such as ‘ethical,’ ‘participatory,’ ‘pure,’ and ‘Indian,’” he added. Raqeeb also told me that his organisation will be issuing a notification to the government to introduce interest-free windows in banks, with a few Islamic-finance products. “But this is going to be done in the name of ‘participatory banking.’”
“Hopefully someday, the tag ‘Islamic’ will not automatically evoke misgivings in the implementation process, and we will manage to effectively transcend the debate on religiosity,” Raqeeb said.
Back at Al-Khair, Ahmad told Anjum that the cooperative usually only provides loans to people who have been members for at least three months. But although she had only held membership for one month, Al-Khair’s fund-development committee had convened a few days earlier to discuss her case. “Since you are in urgent need of this loan for your business,” he said, “they decided that your loan could come through.”
After Anjum filled out some paperwork for the loan and paid a service fee of Rs 1,280, Ahmad handed her a bundle of notes from a drawer under his broad desk. Putting it in her bag, and assuring Ahmad she would return to Al-Khair shortly, Anjum left the office.