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Abstract
In light of India’s growing Muslim population, which is projected to become the largest in the world by 2050, and the subsequent need to address their financial integration, this paper argues for the establishment of a comprehensive legal and regulatory framework for Islamic Banking and Finance (IBF) in India. It examines the two major reasons for the need for IBF in India. First, a significant proportion of Indian Muslims are unable to make investments because their investments are not adequately supported by banks and second, this has deepened their financial exclusion. It also identifies the barriers to the growth of IBF in India, which prevents investments from Muslims abroad as well. It also looks at past efforts to incorporate IBF into the financial system. This paper seeks to make certain suggestions for reform in the legal framework so as to accommodate IBF. It examines the two approaches towards the integration of IBF. The first is that of a dual banking system, where IBF operates under a specialised parallel legislation alongside the conventional banking system. The second approach is a piecemeal approach where additions and amendments are made to existing legislation, which also govern the conventional banking system. This paper argues that a dual banking system would be most workable as India’s financial system is otherwise largely drawn on the conventional banking system based on deposits and interest; a specialised system enables better regulation of Islamic Financial Institutions.
Notes
1 J Prabhu, “Why Islamic Banking in India Is a Good Idea”, DNA News and Analysis, 20 August 2013, available at http://www.dnaindia.com/analysis/standpoint-why-islamic-banking-in-india-is-a-good-idea-1877270.
2 C Proctor, The Law and Practice of International Banking (Oxford University Press, 2010), 767.
3 AH Abdel-Khaleq and CF Richardson, “New Horizons for Islamic Securities: Emerging Trends in Sukuk Offerings” (2006–07) 7 Chinese Journal of International Law 409, 409.
4 AK Aldohni, “The Emergence of Islamic Banking in the UK: A Comparative Study with Muslim Countries” (2008) 22 Arab Law Quarterly 180, 183.
5 Ibid.
6 Ibid.
7 Proctor, supra n 2, 768.
8 Ibid, 767.
9 SQ Qadri, “Islamic Banking: An Introduction” (2007–08) 17 Business Law Today 59, 59.
10 H Salamon, “The Islamic Banking System in Malaysia: Concept, Operation, Challenges and Prospects”, in B Shanmugam, V Perumal and AH Ridzwa (eds), Islamic Banking: An International Perspective (2004), 77.
11 O Salah, “Dubai Debt Crisis: A Legal Analysis of the Nakheel Sukuk” (2010) 4 Publicist 19, 20.
12 Abdel-Khaleq and Richardson, supra n 3, 409.
13 Salah, supra n 11.
14 Ibid.
15 Proctor, supra n 2, 773.
16 Ibid, 769.
17 C Wu, “Islamic Banking: Signs of Sustainable Growth” (2007) 16 Minnesota Journal of International Law 233, 233.
18 Quran, ch 30, para 39, English translation available at http://quran.com/30.
19 Quran, ch 4, para 161, English translation available at http://quran.com/4.
20 HM Sharawy, “Understanding the Islamic Prohibition of Interest: A Guide to Aid Economic Cooperation between Islamic and Western Worlds” (2000) 29 Georgia Journal of International and Comparative Law 153, 161.
21 Proctor, supra n 2, 769.
22 Ibid, 772.
23 I Marinescu, “Where Does the Dirham Stop in a Sukuk Default?” (2012) 35 Hastings International and Comparative Law Review 451, 455.
24 Ibid, 456.
25 KR Sargenti, “The Growth of Islamic Banking: A Singaporean Study on the Legal Conflicts of Embracing Sharirow Law” (2010) 8 Santa Clara Journal of International Law 431, 436.
26 Qadri, supra n 9, 59.
27 Marinescu, supra n 23, 457.
28 Wu, supra n 17, 238.
29 Ibid.
30 Ibid.
31 Ibid.
32 Ibid.
33 L Saqqaf, “The New Sukuks” (2006) 25 International Financial Law Review 19, 19.
34 Ibid.
35 Qadri, supra n 9, 60.
36 Ibid.
37 RJ Thomas, “Islamic Banking and Finance s Regulatory Regimes in Malaysia and Singapore” (2011) 29 Singapore Law Review 165, 173.
38 Qadri, supra n 9, 59.
39 MR Kurpad, ????.
40 SQ Qadri, “Islamic Banking: An Introduction” (2007–08) 17 Business Law Today 61.
41 Qadri, supra n 9, 61.
42 N Lakshman, “In 2050, Indiagimes in Malaysia and SingaporeStudy Globally”, The Hindu, 3 April 2015, available at http://www.thehindu.com/news/international/pew-study-india-muslim-population/article7064237.ece.
43 FS Ambah, “Islamic Banking: Steady in Shaky Times”s Washington Post Foreign Service, 31 October 2008, available at http://www.washingtonpost.com/wp-dyn/content/article/2008/10/30/AR2008103004434.html.
44 Ibid.
45 Press Trust of India, “UAE to Raise Investment in India to Rs 5 Lakh Crore”, Business Standard, 18 August 2015, available at http://www.business-standard.com/article/economy-policy/uae-to-raise-india-investments-to-rs-5-lakh-cr-boost-trade-115081701017_1.html.
46 Sargenti, supra n 25, 437.
47 Kurpad, supra n 1.
48 Ibid.
49 V Varma, “By 2050, India to Have the World's Largest Muslim Population”, Indian Express, 3 April 2015, available at http://indianexpress.com/article/india/by-2050-india-to-have-the-worlds-largest-muslim-population-study/.
50 Qadri, supra n 9, 61.
51 K Das, “Raghuram Rajan Report Advocates Introduction of Islamic Banking”, Financial Express, 4 September 2008, available at http://archive.financialexpress.com/news/raghuram-rajan-report-advocates-introduction-of-islamic-banking/357126.
52 D Unnikrishnan, “Minority Commission Backs Islamic Banking”, Live Mint, 3 June 2012, available at http://www.livemint.com/Companies/jiTHM1oBcGH7HV6lMnhgDM/Minority-commission-backs-Islamic-banking.html.
53 Ibid.
54 Ibid.
55 Ibid.
56 Ibid.
57 B Vizcaino, “RBI Allows Non-bank Islamic Finance Firm”B Reuters, 20 August 2013, available at http://in.reuters.com/article/2013/08/20/islamic-finance-india-idINDEE97J07L20130820.
58 Kurpad, supra n ?.
59 Thomas, supra n 37, 166.
60 Ibid, 166.
61 AM Venardos, “Islamic Banking and Finance in South East Asia: Its Development and Future” 150 (2005).
62 AK Aldohni, “The Emergence of Islamic Banking in the UK: A Comparative Study with Muslim Countries” (2008) 22 Arab Law. Quarterly 188.
63 Ibid, 188.
64 Ibid, 181.
65 Thomas, supra n 37, 166
66 Ibid, 182.
67 S 4(1) read with s 6(4), Banking and Financial Institutions Act 1989, available at http://www.bnm.gov.my/documents/act/en_bafia.pdf ; s 4 of the Central Bank of Malaysia Act 2009, available at http://www.bnm.gov.my/documents/act/cba2009_01.pdf.
68 Thomas, supra n 37, 168.
69 S 3(2), Islamic Banking Act 1983, available at http://www.bnm.gov.my/documents/act/en_ib_act.pdf.
70 Ss 51–57, The Central Bank of Malaysia Act 2009, available at http://www.bnm.gov.my/documents/act/cba2009_01.pdf.
71 S 57, The Central Bank of Malaysia Act 2009, available at http://www.bnm.gov.my/documents/act/cba2009_01.pdf.
72 S 58, The Central Bank of Malaysia Act 2009, available at http://www.bnm.gov.my/documents/act/cba2009_01.pdf.
73 Thomas, supra n 37, 176.
74 supra n. 38 at 177–78.
75 Ibid, 184.
76 Islam Malaysia Berhad v Adnan Bin Omar [1994] 3 CLJ 735.
77 Thomas, supra n 37, 185.
78 Ibid, 186.
79 Abdul Shaik bin Mohammed Ibrahim v Hussein bin Ibrahim [1999] 5 MLJ 618.
80 MI Shariff, “The Development of Islamic Banking Law in Malaysia”h in MD Bakar, E Ali and ER Adawiah (eds), Readings in Islamic Finance (2008).
81 RJ Thomas, “Islamic Banking and Finance-Regulatory Regimes in Malaysia and Singapore” (2011) 29 Singapore Law Review 166.
82 Ibid, 170.
83 Ibid, 179.
84 Monetary Authority of Singapore, “Guidelines on the Application of Banking Regulations to Islamic Banking”o available at http://www.mas.gov.sg/~/media/resource/legislation_guidelines/banks/guidelines/Guidelines_BankingRegns_%20to_IslamicBanking_Apr2010.pdf.
85 S 9, Banking Act (Chapter 19) 1970, available at http://statutes.agc.gov.sg/aol/download/0/0/pdf/binaryFile/pdfFile.pdf?CompId:af119fb0-b122-41e3-8a03-b7709fd2f5fd.
86 S 10, Banking Act (Chapter 19) 1970, available at http://statutes.agc.gov.sg/aol/download/0/0/pdf/binaryFile/pdfFile.pdf?CompId:af119fb0-b122-41e3-8a03-b7709fd2f5fd.
87 S 29 , Banking Act (Chapter 19) 1970, available at http://statutes.agc.gov.sg/aol/download/0/0/pdf/binaryFile/pdfFile.pdf?CompId:af119fb0-b122-41e3-8a03-b7709fd2f5fd.
88 S 38, Banking Act (Chapter 19) 1970, available at http://statutes.agc.gov.sg/aol/download/0/0/pdf/binaryFile/pdfFile.pdf?CompId:af119fb0-b122-41e3-8a03-b7709fd2f5fd.
89 S 40, Banking Act (Chapter 19) 1970, available at http://statutes.agc.gov.sg/aol/download/0/0/pdf/binaryFile/pdfFile.pdf?CompId:af119fb0-b122-41e3-8a03-b7709fd2f5fd.
90 Thomas, supra n 37, 175.
91 Ibid, 175.
92 Aldohni, supra n 4, 189.
93 Ibid, 190.
94 Ibid, 192.
95 M Ainley et al, Islamic Finance in the UK: Regulations and Challenges (Financial Services Authority, 2007), 1, 6, available at http://media4.efinancialnews.com/share/media/downloads/2007/11/2349281881.pdf.
96 Ibid.
97 Ibid, 7–8.
98 Ibid, 8.
99 Ibid, 8–9.
100 Ibid, 9.
101 G Tett, “The Wealth Issue: Make Money, not War”, Financial Times, 22 September 2006, available at http://www.ft.com/cms/s/0/d515b9b0-46af-11db-ac52-0000779e2340.html.
102 D Cameron, Prime Minister's Speech at the World Islamic Economic Forum, available at https://www.gov.uk/government/speeches/world-islamic-economic-forum-prime-ministers-speech.
103 E Moore and T Hale, “UK Sukuk Bond Sale Attracts £BonBillion in Orders”r Financial Times, 25 June 2014, available at http://www.ft.com/intl/cms/s/0/7c89467e-fc4e-11e3-98b8-00144feab7de.html#axzz3QCDjsMud
104 Cameron, supra n 102.
105 S 73, Finance Act 2003, abolishing double stamp duty on Islamic mortgages.
106 Ss 47, 49, Finance Act 2005, giving legal recognition to mudaraba and murabaha structured mortgages.
107 S 96, Finance Act 2006.
108 ND Miller, J Challoner and A Atta, “UK Welcomes the Sukuk” (2007) 26 International Financial Law Review 24, 24.
109 J Ercanbrack, “The Regulation of Islamic Finance in the United Kingdom” (2011) 13 Ecclesiastical Law Journal 69, 70.
110 UK Government, “UK Excellence in Islamic Finance”K available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/367154/UKTI_UK_Excellence_in_Islamic_Finance_Reprint_2014_Spread.pdf.
111 V Rowley, “The Rise of Islamic Finance in the United Kingdom” (2014) 2 UK Law Student Review 75, 81.
112 Ibid, 84.
113 Thomas, supra n 37.
114 S 58(a), The Transfer of Property Act 1882.
115 S 58(b), The Transfer of Property Act 1882.
116 S 58(c), The Transfer of Property Act 1882.
117 S 58(d), The Transfer of Property Act 1882.
118 S 58(e), The Transfer of Property Act 1882.
119 S 58(f), The Transfer of Property Act 1882.
120 S 58(g), The Transfer of Property Act 1882.
121 SJ Sorabjee, “Darashaw Vakil's earlier work on Transfer of Property”, in Soli J Sorabjee (eds), Darashaw J. Vakil on Transfer of Property Act.
122 SM Nizami, “Islamic Finance: The United Kingdom009Drive to Become the Global Islamic Finance Hub and the United StatesUnited KingdoIndifference to Islamic Finance”(2011) 34 Suffolk Transnational Law Review 219, 230.
123 The Indian Stamp Act 1899 (emphasis added), available at http://finmin.nic.in/law/Stamp%20Act%201899.pdf
124 H Quereshi, “Sharia-compliant Mortgages Are Here – And They're Not Just for Muslims”, The Guardian, 29 June 2008, available at http://www.theguardian.com/money/2008/jun/29/mortgages.islam.
125 Ibid.
126 A Kammer, M Norat et al, Islamic Finance: Opportunities, Challenges and Policy Options (International Monetary Fund, April 2015), available at http://www.imf.org/external/pubs/ft/sdn/2015/sdn1505.pdf.
Additional information
Notes on contributors
Meenakshi Ramesh Kurpad
Meenakshi Ramesh Kurpad BA, LLB (Hons) Candidate, Batch of 2016, West Bengal National University of Juridical Sciences, Kolkata, India. This paper is a development of earlier works on Islamic finance; namely ‘Need for Islamic Finance’ published in The Statesman, 9 April 2015 available at www.thestatesman.com/news/law/need-for-islamic-finance/56614.html and ‘Legal Aspects of Sukuk in Islamic Finance: Making a case for Indian Debt Markets’ (2015).