Financial Services for Minorities

That many Muslims in India keep off banking because Sharia prohibits Riba or interest and that scheduled castes and tribes who embrace Christianity lose reservation benefits are facts that have been in public discourse at least for over half-a-decade. So have Islamic banking, the age old concept of interest-free banking which has taken roots in several countries including Malaysia, Japan, Singapore, France, Hong Kong and United Kingdom in last three decades-and-a-half and prevalence of gender biases against business women in India.

This is as much a fact that Muslims, Christians, Parsis, Jews, Sikhs, women and SCs and STs etc, are minorities when it comes to sharing the fruits of development in the country. They are the most discriminated against and are still placed outside the socioeconomic mainstream despite the government having announced several schemes for their welfare.
The cases of school dropouts among SCs, STs and minorities are highest in the country. Since they are the ones who are mostly enrolled in government schools and live in unhygienic and unlivable conditions (katcha houses etc), the vagaries of nature and weather – flood, rains, extreme cold and hot – affect them the most. At times, more than shortage of finance, the environment at home is what makes them drop out of the school.

“The maximum dropout of school children is from the poorer houses. 80% of the children today don’t reach the 10th class; 50 % of these drop out up to 5th and 6th class and 30 % between 6th and 10th class,” claims Smita Premchander, Secretary, Sampark, a Bangalore-based NGO that works for extreme poor.

When it comes to banking, the Muslims, scheduled castes & tribesturned- Christians, Parsis, women, SCs and STs are part of the least included lot. Muslims in particular have stayed off it primarily because Sharia brands interest and insurance as haraam (illegitimate). “It is because of the Muslim aversion to interest and also because among Muslims insurance is looked upon as not acceptable, that their representation in the finance field is so low,” voices Mohd Hussain Khathatay, Senior Advisor, TASIS (Taqwaa Advisory and Shariah Investment Solutions). Wajahat Habibullah, Chairman, National Commission for Minorities also points out that Muslims have benefitted the least from banking system because of their antipathy towards interest.

It would be no exaggeration to say that the government has not done much to introduce Islamic banking in the country. Right from the working group, Reserve Bank of India (RBI) set up in 2005 under Anand Sinha, then General Manager of Banking Operations, to Justice Rajendra Sachar Committee which submitted its findings in 2006 to the UPA government to Raghuram Rajan Committee which Planning Commission formed in 2008, the exclusion of Muslims from banking and its reasons have been studied in depth. They have also recognised what is known to many others as well that faith and poverty were mainly the reasons which kept the community off banking, saving and insurance. Rajan Committee said that there were certain faiths in this country, which did not subscribe to interest.

At least two of the groups – the working group headed by Sinha and Rajan Committee – examined Islamic banking as part of their mandate. While the working group whose report was said to be only for internal consumption concluded that it was not possible to introduce Islamic banking in secular India, the latter argued in favour of the interest-free banking. Though Sachar Committee did not mention interest-free banking, it advised the government to take steps to specifically direct credit to Muslims and create awareness among them about various credit schemes.

If poverty persists, the poorer including sections of minorities, could become a national economic liability. As a result, they will start acting as a retardation of the development process.” Wajahat Habibullah, Chairman, National Commission for Minorities

Yet barring Kerala where the state government intends to ‘take forward the good things including Al Barakah Financial Services initiated by its predecessor’, the powers-that-be in the country have dithered on introduction of interest-free banking despite the Prime Minister having promised to have a look at the system more than once. Even in Kerala, the latest development may be quite disheartening as the regulator – RBI – has asked Alternative Investments and Credits (AICL), a state-based firm working for Islamic finance, to explain the basis of its ‘participative financing’ deals. The end result is that the largest minority of the country continues to be excluded from banking. Add number of its excluded section to women, street children, scheduled castes, scheduled tribes and other marginalised groups under BPL and you have an army of Indians who are still out of financial mainstream.

“We have heard about our growth rate of 8.5%. Does this economic growth make any difference to our BPL families. Has it made any difference to the poor?” Elais Gonsalves, Director, Centre for Social Action

“Today when we are talking about 8-9 % growth, the 860-odd million marginalised Indians are only earning ` 20 per day. There are super rich and there are super poor. There are oceans of poverty and islands of prosperity,” points out H Abdur Raqeeb, General Secretary, Indian Centre for Islamic Finance. The development seems to be limited to a few metros or rather centre of the metros. This is what Elais Gonsalves, Director Centre for Social Action (CSA), found out when his organisation conducted survey of a fishing community in an area near Gorai, some 20 kilometres from Mumbai. The CSA found that only 10-15 per cent of the fisher folks had bank accounts. “We have heard about our growth rate of 8.5%. Does this economic growth make any difference to our BPL? Has it changed their lifestyle? Has it made any difference to the poor and the marginalised of our communities? How effective have the various economic empowerment programmes of the government for the minorities been?” Gonsalves asks.

“Students whose parents’ income is up to ` 100,000 can study anything from MBBS, B Tech, MBA to MCA etc, their fees are reimbursed by the government.” Mohd Ilyas Rizvi, Vice Chairman, A P State Minorities Finance Corporation

Since India is a democracy and democracy is supposed to protect its minorities and other disadvantaged groups, the poor status of various minorities in the country not only reflects poorly on our governance but also has the risk of turning them into rebels and a national liability. “If poverty persists, the poorer, including sections of minorities, could become a national economic liability. Instead of actually participating and contributing to the development process, they will start acting as a retardation of the development process,” claims Habibullah.

Interestingly, there is enough number of precedents worldwide for India to choose on interest-free banking. “UK, Europe, Malaysia, Singapore – all of them have got provision for interestfree banking and therefore a roadmap has already been charted, not necessarily in a theocratic environment like Iran, but in a secular, economic environment,” says Habibullah. Raqeeb seeks amendment in Banking and Insurance Act to provide for ethical and socially responsible type of things and asks, “If London, Paris, Tokyo and Singapore are becoming hub and house of Islamic banking and finance, then why not Mumbai and Cochin?”

Interestingly, there is enough number of precedents worldwide for India to choose on interest-free banking. “UK, Europe, Malaysia, Singapore – all of them have got provision for interestfree banking and therefore a roadmap has already been charted, not necessarily in a theocratic environment like Iran, but in a secular, economic environment,” says Habibullah. Raqeeb seeks amendment in Banking and Insurance Act to provide for ethical and socially responsible type of things and asks, “If London, Paris, Tokyo and Singapore are becoming hub and house of Islamic banking and finance, then why not Mumbai and Cochin?”

A good part of Islamic banking is that since a moral filter ensures that the investments do not go to alcohol, gambling and environmentally degrading products, it attracts both Muslims and non-Muslims. This is what has made it a success in Malaysia, UK, Hong Kong and Singapore. In Malaysia, one of the leaders of Islamic banking and finance, for instance, 40% investors and 60% borrowers are said to be non-Muslims. In UK too 20% of the applicants for Islamic products, in Islamic Bank of Britain are not supposed to be Muslims. “Islamic banking focuses on transparency, cooperative ventures, shared risk and ethical investing which attracts a wide range of both Muslims and non-Muslims alike. Can you afford to ignore it is a question for our country – not only for Muslims,” Habibullah says.

Government is advised to make interests of gender, street children and other disadvantaged groups intrinsic part of the proposal. The major principles of interest-free banking are that no finances will be extended to gambling, alcohol, armaments and the investor and the investee share both profit and loss.
A positive feature of interest-free banking is that since Muslims do not wish to make use of the interest they earn on deposits, the same may be invested in education and other social sector projects. “Those thousands of millions which are lying without investment will be invested in India’s economy,” Habibullah says. Besides the implementation of interest-free banking will also promote an inflow from both the Gulf and the Far East and Malaysia, which have made considerable progress in this. Malaysia, for instance, has an asset based Islamic bond, SUKU, which is biggest for long-term investment in infrastructure development.

This apart, there is a need to promote financial literacy among minorities (financial rather than religious) and take banking to their doorstep for their inclusion in the financial edifice. It is a well known fact that there are not many banks in the areas inhabited by Scheduled Castes, Scheduled Tribes, and other deprived sections. “There are hardly any banks in areas dominated by minorities, particularly Muslims. We must attempt to correct this,” exhorts Safdar H Khan, Chairperson, Delhi State Minorities Commission.

There is a need to involve NGOs to promote financial literacy among the poor. For example, Sampark, which promotes formation of SHGs and cooperatives among poor, would know about how the SC, ST and minority women are discriminated against by financial institutions. “We have promoted 230 groups and 10 cooperatives. Of the 230 groups the groups which are SC have low savings, they migrate more, they are irregular and they never make Grade A of the banking grades so they never get the kind of loans the other SHGs get. Invariably the general castes have much better livelihoods than the ones who are scheduled castes and Muslims,” Premchander asserts.

It would help if the governments not only draw up plans for assistance to students from poor households but also sees to it that it reaches them. They could make use of technology to plug leakages. Andhra Pradesh government, for instance, reimburses 100% fees of students from SC, ST and minorities whose parents’ income does not exceed ` 100,000 and who are studying in school, colleges or professional institutes. “The state has given the guarantee that students whose parents’ income is up to ` 100,000 can study anything from school, college, MBBS, B Tech, MBA to MCA etc, their fees will be reimbursed by the government,” reveals Mohd Ilyas Rizvi, Vice Chairman, A P State Minorities Finance Corporation. The State Government has an online scholarship programme for such students. It opens bank accounts of eligible students and transfers the funds online. The upshot there is 30% reduction in the school dropout rates of the minority students and there is 30% to 40% increase in the college going students.

Rizvi hopes the other state governments will take a cue from AP and introduce the online fee reimbursement scheme. “If this scholarship and fee reimbursement is introduced in other states also, I think, lot of development of minorities will take place”.

Considering that many women from poor households and minorities have very good skills and they manufacture things on daily wages for local businessmen, it may help if they are taught entrepreneurial skills, have access to credit, and know how to market their work for better profits. An example is football-stitching work that takes place in poor households in Jalandhar. The problem is that these women are happy to work as wage earners. The middleman delivers raw material at their place and takes back the manufactured items after paying them a meagre amount. They have to be brought into the entrepreneurial model. What they need is a line of credit and technical skills to become part of national financial mainstream.