Shariah-compliant banking in Kashmir

Despite fierce opposition by the Hindu nationalists, India seems to be warming up for Islamic banking; primarily because no nation can aim for economic supremacy in the current global context if it chooses bigotry over improved financial health.
Shariah-compliant banking in Kashmir
Representational Pic

While everything else seems to be debilitating these days, Islamic finance is gaining ground. Despite fierce opposition by the Hindu nationalists, India seems to be warming up for Islamic banking; primarily because no nation can aim for economic supremacy in the current global context if it chooses bigotry over improved financial health. It's thrilling to see Islamic mode of finance advancing in an era of Islamophobia, outstripping the conventional banking in terms of growth rate- more than 17% as per the Ernst & Young- which is two to three times faster than the growth of conventional banks, as per the BBC report. The governments of the United Kingdom, Singapore & now possibly India has no love lost for Islam or Muslims. Why are they taking such lively interest in it? It can't even be an electoral issue since Muslims form a microscopic minority in the most developed world & in India, the ruling party thrives on majoritarianism, not Muslim appeasement. What's it then? It's the realization that this form of finance, espoused by Islam, has really proved to be a solution, especially after the sub-prime mortgage crisis in the US in 2008.

Just a few years ago, the then RBI Governor D. Subbarao was outrightly against the introduction of Islamic banking in India. When he was replaced by Raghuram Rajan, the chances brightened because he was a known advocate of Interest-free finance. However, when the incumbent chief- Urjit Patel took over, India's central bank proposed working with the government to introduce interest-free banking to tackle financial exclusion. Locally, our Jammu & Kashmir bank has got a new leader- Parvez Ahmad, who in his first press interaction admitted the lack of serious thought on alternative banking, on part of the bank as opposed to the huge demand for it in the state. He promised to take it up with the RBI. Talking about the RBI, it came up with Report of the Committee on Medium-term Path on Financial Inclusion in December 2015, in which it advocated to set up Islamic Windows in conventional banks. Since RBI had sought suggestions from the concerned people, I had also written to them. Interestingly, on May 6th, 2014, I had suggested the same, in my GK column, given that the other two modes of introduction- Stand alone Islamic bank & Non-banking financial institution- would require new companies to be set up. Since it has all boiled down to the same plan, with RBI advising the introduction of Islamic windows & ready to work with the Central government and JK bank willing to work with the RBI, I find it apt to again offer suggestions to the JK bank.

Roadmap for Interest-free window in J&K Bank
(in consultation with the former RBI legal advisor)
I acknowledge that the JKB being one of the leading banks of the country has sufficient knowledge, expertise and competent operational and legal expertise to develop a suitable roadmap proposal to RBI, requesting approval for the introduction of the Interest-Free Banking window in its premises in J&K. I, however, suggest that following steps may be considered;
I believe approach by Jammu & Kashmir Bank Ltd., Srinagar – herein referred to as "JKB" for getting approval from RBI for JKB Special Window- herein referred to as "JKBSW" for interest-free/shariah compliant products & services has to be slightly different.
Following points can be considered and incorporated suitably in a letter of request /presentation/representation by JKB to RBI.
1. Proposal: JKB is a scheduled bank.{Secs. 2(e), 42 & 2nd schedule to RBI Act, 1934}.It is a commercial bank governed by the BR Act, 1949. Being a conventional bank, it carries on "banking"and other "forms of business". {sec. 5(b) and 6}.
It now proposes to open JKBSW for interest-free/Shariah compliant products & services. Hence, it seeks RBI's permission to do so.
2. Status: JKBSW will be a cell/division/department/branch of JKB but as a unit, it will be totally separate.Some "firewalls" will be created between JKB and JKBSW.
3. Corpus: JKB will place certain sum, say Rs. 50 Lacs, from equity capital fund/donation/grants/interest-free advance as corpus. Other sources of funds will be interest-free deposits, interest-free income, fees/commission/charges levies generated from JKBSW activities.
4. Organization: The following will be provided by JKB to JKBSW free of cost, i.e., cost and expenses will be borne on the books of JKB till JKBSW achieves break-even: 
(a) Premises/place of business
(b) Staff and officers and shariah advisors
(c ) Establishment/furniture/fixture, stationery, etc.
5. Functions: JKB will continue to do its conventional banking business. JKBSW will take such of the shariah-compliant banking businesses which are cleared first by shariah advisors and then by RBI so as to ensure that shariah advisors role does not come in conflict with RBI.
6. Accounts and Audit: All accounts and audit will continue to be in conformity with Companies Act/RBI Act/BR Act as well as RBI's directions and regulations etc. In addition, it will be ensured that there is no breach of principles of shariah in respect of accounts/audit for products and services offered by JKBSW.
7. RBI's Role: RBI's Regulatory and Supervisory functions, as well as Control over JKB and JKBSW operations, shall remain in full force and binding except to the extent exempted by RBI e.g Sec. 42(7) of RBI Act or any direction issued under sec. 20
of BR Act, 1949 specific to JKB/JKBSW.

Mehboob Makhdoomi is a Harvardian & an MBA from Pennsylvania University (IUP) -United States with a Research degree from Cardiff University, United Kingdom. 

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