Hyderabad based Muslim Chamber of Commerce and Industry (MCCI), a non-government, not-for-profit apex business organization of Muslims has recommended RBI that the purview of Islamic finance should be extended beyond interest-free banking to include NBFCs, micro finance institutions, insurance companies, AMCs, SEBI registered investment advisors, full-fledged money changers and cooperative societies.
MCCI has sent its recommendations to RBI on the report of the committee on ‘Medium-term Path on Financial Inclusion’ released in December last year.
Here are some of the key recommendations made by MCCI to RBI:
Investment in specified securities: As part of compliance, banks and NBFCs have to maintain liquid assets such as gold or approved securities as reserves other than cash. The nature of specified securities is interest bearing. In order to provide a level playing field between conventional and interest-free banking windows/NBFCs, MCCI suggests giving an option to invest in gold and Shariah-compliant CPSE Exchange Traded Funds. The ratios can be appropriately adjusted for mark-to-market rates. This will enable liquidity through earning of income from the investments.
Unorganized institutions: India has hundreds of unorganized institutions, some of them registered as Societies, NGOs, Charitable and Religious Trusts which offer interest-free financial services. These entities provide micro-financing on cost basis or as loans on basis “payable if able”. The regulatory bodies, be it RBI or SEBI should recognize them and bring them within the regulatory framework. Such entities with long service to the community may be recognized as recipients under “Corporate Social Responsibility” initiative for corporates.
Mutual insurance or Takaful: Jan Dhan Yojana (JDY) offers a life insurance cover of one lakh rupees and health insurance cover of thirty thousand rupees as an incentive to open a bank account. It is therefore imperative that interest-free insurance be available for inclusion of Muslims under the JDY program.
Takaful is based on mutual co-operation, responsibility, assurance, protection and assistance between groups of participants. Takaful should be allowed to promote competition and diversity. General Insurance Company (GIC) is offering Islamic insurance in the Middle-East countries and it should be allowed to offer a similar product to be included in interest-free JDY.
SIP: SIP in Shariah-compliant mutual funds can be the third leg to be integrated with JDY to infuse Dhan. The current taxation on capital market investments is also conducive to interest-free financial inclusion program.
It is pertinent to point out that although capital market regulations are Shariah-friendly and there is no need of any change in regulations for Islamic investments there is a need of tax savings schemes which are Shariah-compliant.
Regulatory gap: It may not be out of place to mention that before the introduction of Takaful and Shariah-compliant investment products the aspect of regulatory gap may also be looked into as many insurance companies and asset management companies are offering products without registration.
Build expertise within RBI: It is important to build expertise within RBI to oversee operations and audit relating to interest-free banking window. Indian market has adequate number of ex-bankers who have worked in Islamic banks in the Middle-East. Similarly, some of Indian Shariah scholars are already on the Shariah Board of British Islamic Bank and other banks.
Educational and investor awareness programs: SEBI has mandated AMCs to allocate two basis points of their AUM for conducting investor awareness programs. Recently, the regulator has proposed that 50% of the funds should be shared with AMFI for conducting IAPs. The committee can encourage interest-free banking by utilization of these funds and impart education in premier banking educational institutions.
Wakf institutions: Such institutions have a huge wealth which is not actively supporting the national economy. Zakat institutions also fall in this category. RBI should offer avenues for profitable interest-free institutions.
