islamic banking - prospects and challenges in india - pa shameel sajjad - zirva institute of islamic...
TRANSCRIPT
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
1/40
ISLAMIC BANKING:PROSPECTS &
CHALLENGES
Brennen College Seminar
27 October 2014
PA Shameel SajjadDirectorZirva Institute of Islamic Finance
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
2/40
Outline The Inherent Problem with Conventional Banking
The Alternative of Islamic Banking
Challenges Posed by the Law in India
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
3/40
The Inherent Problem with
Conventional Banking
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
4/40
The Instrument of Interest
The concept of interest presumes the usage of capital as a
factor of production and claiming a reward for the usage like
the other factors of production vis a vis land, labour and
organization.
But in reality capital is not an original factor of production.
It is only a means to acquiring other factors of production.
This is evident from the fact that capital cantgo directly into
production like other factors but will be used only in the
procurement of any of the other factors of production that
can be directly used in the process of production.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
5/40
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
6/40
The concept of the right to interest on
capitalcreates the necessity for securing the
capital loaned and the interest thereupon.
Securing this right and ensuring repayment of
capital and payment of interest cantdepend
upon the financialdestiny of the enterprise.
This makes the whole mechanism of
conventional banking collateral based even
for risky enterprises.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
7/40
With the existence of collateral as an essential
condition for lending, conventional banking system
can never become inclusive.
Rather it becomes exclusively reserved for thesections of population who are relatively well off
with some asset base (which can be offered as a
collateral).
This reality can be verified in the Indian context from
the statistics issued by the Reserve Bank of India.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
8/40
The number of loan accounts constituted only 14 per cent of
adult population - In rural areas, the coverage is 9.5 per cent
against 14 per cent in urban areas.
The extent of exclusion from credit markets can be observed
from a different view point. Out of 203 million households in
India; 89 million are farmer households. 51.4 per cent of farm
households have no access to formal or informal sources of
credit while 73 per cent have no access to formal sources of
credit. However after 1991, the share of non institutional sources has
increased; specifically, the share of moneylenders in the debt
of rural households increased from 17.5 % in 1991 to 29.6% in
2002.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
9/40
The financially excluded sections largelycomprise marginal farmers, landless labourers,oral lessees, self employed and unorganisedsector enterprises, urban slum dwellers,
migrants, ethnic minorities and sociallyexcluded groups, senior citizens and women.
Source: Text of speech by Smt. Usha Thorat,Deputy Governor, Reserve Bank of India at theHMT-DFID Financial Inclusion Conference 2007,Whitehall Place, London, UK on June 19, 2007.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
10/40
For India, financial inclusion has become a key
policy concern as there are over 600 million
citizens who lack basic banking and financial
services.
In India, financial exclusion has strong linkages
with poverty and is predominantly
concentrated among the vast sections ofdisadvantaged and low income groups.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
11/40
One of the important factors behind rising farmer
suicides in the countryside is the lack of access to credit
from banks and institutional sources and the inability to
repay due to loss of crops.
In the early 2000s, India launched a massive drive to
bring most of its population under the formal banking
system.
However, 90% of the 100 million accounts opened underthe plan are unused and close to half of Indias 1.2
billion-strong population still donthave bank accounts.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
12/40
The number of the Indian poor constitutes
33% of the global poor, which is pegged at 1.4
billion people.
According to World Bank estimate, India had
456 million people or about 42% of the
population living below poverty according to
the new international poverty line of US$ 1.25per day.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
13/40
If the international poverty line is slightlyraised from the US$ 1.25 /day to US$ 2 / daythe scenario is further disheartening.
Based on that measurement, India had 828million people, or 75.6% of the populationliving below the poverty line surpassing thesub Saharan Africa, considered the worldspoorest region with 72.2% people withoutUS$ 2 / day.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
14/40
Key Facts and Figures
41% of the population in India is unbanked.
40% is unbanked in urban areas.
61% is unbanked in rural areas. Only 14% of the population have loan
accounts.
9.5% in rural areas. 14% in urban areas.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
15/40
203 million households in India
147 million households in rural areas
89 million are farmer households.
51.4% of farm households have no access to formal
or informal sources of credit.
73% of farm households have no access to formal
sources of credit. Share of money lenders in debt finance has
increased.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
16/40
The Islamic Alternative
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
17/40
By taking out the interest out of the process of financial
intermediation Islamic baking has strong nexus with actual
production and distribution on the ground.
Money as such doesnt have a right to earn. The right to
positive revenues is an entitlement which is granted by
partaking the risks and uncertainties of productive activities.
When this maxim is established collateral will have no
significant role as far as financing for productive activities are
concerned.
This is because there is no binding responsibility on the
entrepreneur to guarantee the repayment of the capital and
interest. The binding responsibility is to share the revenue /
profit of the venture.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
18/40
As soon as this happens the focus shifts to inherent capability
of the venture to generate profits which will depend in turn
on a number of factors like demand for the commodity /
brand, capability of the entrepreneur, quality of management,
sincerity of the entrepreneur etc.
Thus a financial atmosphere is established in which the asset
backing of the clients of the bank will be of little use to the
bank and the rich and the poor will be on a level playing field;
a scenario where the richness of the rich will no longer be aprivilege and the poverty of the poor will no longer be a an
obstacle.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
19/40
Thus Islamic banking is a transition from
aristocratic/ feudal / undemocraticbanking to
democraticbanking for the masses.
For the bank its positive returns will be workedout on the basis of the Portfoliotheory. That is
even after the due diligence exercised before
investing in projects if some projects fail they willbe made up by the success of other projects.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
20/40
Potential High Impact Areas for
Islamic Banking in India
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
21/40
Agriculture
"Slow agricultural growth is a concern for policymakersas some two-thirds of Indias people depend on ruralemployment for a living. Current agricultural practicesare neither economically nor environmentally sustainable
and India's yields for many agricultural commodities arelow. Poorly maintained irrigation systems and almostuniversal lack of good extension services are among thefactors responsible. Farmers' access to markets ishampered by poor roads, rudimentary marketinfrastructure, and excessive regulation."
World Bank: "India Country Overview 2008"
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
22/40
"With a population of just over 1.2 billion, India is the worlds largestdemocracy. In the past decade, the country has witnessed acceleratedeconomic growth, emerged as a global player with the worlds fourthlargest economy in purchasing power parity terms, and made progresstowards achieving most of the Millennium Development Goals. Indiasintegration into the global economy has been accompanied by impressive
economic growth that has brought significant economic and socialbenefits to the country. Nevertheless, disparities in income and humandevelopment are on the rise. Preliminary estimates suggest that in 2009-10 the combined all India poverty rate was 32% compared to 37% in2004-05. Going forward, it will be essential for India to build a productive,competitive, and diversified agricultural sector and facilitate rural, non-farm entrepreneurship and employment. Encouraging policies thatpromote competition in agricultural marketing will ensure that farmersreceive better prices."
World Bank: "India Country Overview 2011
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
23/40
Share in National Income: The contribution fromagriculture has been continuously falling from 55.1% in1950-51 to 37.6% in 1981-82 & further to 18.5% in 2006-07. But agriculture still continues to be the main sector
because it provides livelihood to majority of the people. Largest Employment Providing Sector:in 1951, 69.5% of
the working population was engaged in agriculture. Thispercentage fell to 66.9% in 1991 and to 56.7% in 2001.
However, with rapid increase in population the absolutenumber of people engaged in agriculture has becomeexceedingly large.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
24/40
Islamic Banking Solutions to the
Farming Sector
SalamAdvance Purchase of Crops
MuzaraaShare Cropping
MusaqathCrop Sharing for Maintenance
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
25/40
Infrastructure
The infrastructural requirement of India is US$ 1trillion.
This cantbe financed by government funding alone.
Islamic banks can issue sukuk to address thisrequirement.
This will not introduce any additional debt burden onthe citizens of India.
We currently have a per capita debt of Rs. 33,000/- The debt repayment for 2014/15 is seen at 1.397
trillion rupees.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
26/40
Micro Medium and Small Enterprises
MSMEs are the real growth drivers in anyeconomy.
Overall finance gap in MSME sector is 32.5 trillionrupees (MSME Census, RBI, SIDBI).
MSMEs largely require equity financing.
But the demands of listing and the competitiveconventional equity markets are not easilyaccessible for them.
This vast need can be financed by Islamic bankswhich rely on risk financing which is the essenceof the MSME sector.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
27/40
Obstacles for the Introduction of
Islamic Banking in India
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
28/40
Section 5 (b) and 5 (c) of the Banking Regulation Act,1949 prohibit the banks to invest on Profit Loss Sharingbasis -the very basis of Islamic banking.
Section 8 of the Banking Regulations Act (BR Act, 1949)
reads, Nobanking company shall directly or indirectlydeal in buying or selling or bartering of goods
Section 9 of the Banking Regulations Act prohibits bankto use any sort of immovable property apart from
private usethis is against Ijarah for home finance. Section 21 of the Banking Regulations Act requires
payment of Interest which is against Sharia.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
29/40
Operational Issues
SLR Requirements Banks have to invest atleast 25% of their NTDL (Net Demand andTime Liability) in government securities.
CRR Requirements 6.5% of NTDL should bedeposited with RBI on which interest accrues.
Call Money Call Money Rate on Borrowing
from other banks which carries interest. Repo Transactions Banks borrow from the
Central Bank which carries interest.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
30/40
Raghuramrajan Committee Report
Chapter 3: Broadening Access to finance Page 35
While interest-free banking is provided in a limited manner through
NBFCs and cooperatives, the Committee recommends that measures be
taken to permit the delivery of interest-free finance on a larger scale,
including through the banking system. This is in consonance with the
objectives of inclusion and growth through innovation. The Committeebelieves that it would be possible, through appropriate measures, to
create a framework for such products without any adverse systemic risk
impact.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
31/40
THANK YOU!!
Contact details
+91 9745 812 277
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
32/40
Learn Islamic Finance with Zirva
Institute of Islamic Finance and Be a
Part of the Transition
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
33/40
Zirva Institute of Islamic Finance is the go to
place for Islamic finance courses.
We offer students a wide array of courses to
choose from according to their availability of
time, requirements and orientation to the
subject.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
34/40
We Offer
MBA in Islamic Economics and Finance(Certificates Issued jointly by Pebble HillsUniversity, USA and Zirva Institute of Islamic
Finance) (10 months) - Fees US$ 2000 Accounting and Auditing Organization for
Islamic Financial Institutions, Bahrain(AAOIFI) - Certified Shariah Adviser and
Auditor - (30 sessions) - Fees 1.5 lakhs
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
35/40
Chartered Institute of Management
Accountants, London (CIMA) Modules
1. CIMA Certification in Islamic CommercialLaw (15 sessions) - Fees Rs. 50,000/-
2. CIMA Certification in Islamic Banking and
Takaful (15 sessions) - Fees Rs. 50,000/-3. CIMA Certification in Islamic Commercial
Law (15 sessions) - Fees Rs. 50,000/-
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
36/40
Twinning Programs with National Certifications inFinancial Markets (NCFM) Certifications
1. Certification in Islamic Banking + NCFM Certification
in Commercial Banking (20 sessions) - Fees Rs. 25,000/-
2. Certification in Islamic Insurance + NCFMCertification in Insurance (20 sessions) - Fees Rs.
25,000/-
3. Certifcation in Islamic Capital Markets + NCFMCertification in Capital Markets (20 sessions) - Fees Rs.25,000/-
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
37/40
One Day & Short Term Certifications in Islamic Finance from ZirvaInstitute of Islamic Finance
One day intensive awreness workshop in Islamic finance (6 hours)Fees - Rs. 1000/-
Short Term Certification in Islamic Banking (4 sessions) - Fees - Rs.
5000/- Short Term Certification in Islamic Islamic Insurance (4 sessions) -
Fees - Rs. 5000/-
Short Term Certification in Islamic Capital Markets (4 sessions) -Fees - Rs. 5000/-
Short Term Certification in Islamic Commercial Law (4 sessions) -Fees - Rs. 5000/-
Diploma in Islamic Banking and Finance (Islamic Commercial Law +Islamic Banking + Islamic Insurance + Islamic Capital Markets) (10sessions) - Fees Rs. 15,000/-
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
38/40
Our External Services
We undertake onsite training assignments for
organizations in Islamic Finance.
We undertake corporate training assignments inIslamic Finance.
We set up Islamic Banking and Finance courses
and facilities in educational institutions.We take up teaching assignments in educational
institutions for Islamic Finance.
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
39/40
For all queries related to admissions and
conducting training programmes and teaching
assignments:
Call9745812277
Email: [email protected]
-
8/10/2019 Islamic Banking - Prospects and Challenges in India - PA Shameel Sajjad - Zirva Institute of Islamic Finance
40/40
THANK YOU!!
Contact details
+91 9745 812 277