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Muslims and Banking

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By D. M. Iqbal

Indian Banking system is perhaps one of the soundest financial institutions anywhere in the world. The country has 19 nationalised banks which take the financial services to people in every nook and corner of the country through their 20,000 branches. They are supplemented by several thousand other banks which are in the category of scheduled banks or cooperative banks that mobilize savings from the people and provide credit for growth. Several of them are much more hi-tech than the nationalized banks.
No banks collapsed or were shut down in India even during the 2008-09 when recession had taken the Western banking system into its grip. This goes to prove the strength of the Indian banking system and the resilience of the India’s financial system which is tightly controlled by a government that understands the role of the firm bulwark they provide to the economy. It is useful to be reminded that the banks in India are not slaves of the free market as it obtains in the so called free economies in the West. India being a third world economy, cannot afford to allow them to be operated in sync with the whims and fancies of the market forces. The Government has to maintain control over them in order to safeguard the interest of millions of the small depositors whose deposits carry insurance by the Government in nationalized banks. While nearly 800 banks collapsed alone in the United States of America, no such catastrophe was seen in India. To the contrary, the banks in India waived off loans to the tune of Rs. 80,000 crore owed by the farmers, crafts persons and weavers. This goes to prove the resilience of the Indian economy.
Besides banks, several other financial institutions such as Industrial Development Bank of India, IFC and financial corporations in the States such KFSC in Karnataka (and their similar variants in various states) or the various development funding institutions such as National Minority Financial Development Corporation (NMFDC) and other such bodies related to various social groups also chip into the economic development and in promotion of entrepreneurship.
The Central Government had identified 121 districts across the country where nationalized banks were asked to set aside 15% of their loan amount for minorities. This was done in 2009. These were those districts where minorities either constituted majority or were in sizeable proportions. This measure was devised in order to make the growth socially inclusive, an objective of the Eleventh Five-year Plan.
There were three such districts in Karnataka namely Bidar, Gulbarga and South Canara.
I collected the data from one of the nationalized bank with its headquarter in Bangalore. This bank had issued loans to the tune of Rs. 14,000 to the minority individuals by September 2011. This constituted 18.70% of the total amount issued to the borrowers. Of this, just over one per cent of loans were extended to the members of the Muslim minority while the remainder were availed of by other minorities such as Christians, Sikhs and Jains.
The preferential sectors where these loans were to be deployed were 1- agriculture, poultry, dairy farming, fisheries and floriculture, 2- small industries, 3- small businessmen, retail outlet owners and self-employed people, 4- students pursuing education in India or overseas, 5- construction of houses, and 6- people engaged in import and export businesses.
This serves as an index as to how the most deserving minority component i.e., Muslims, has lagged behind in availing of a scheme which was principally designed as a measure to help them become entrepreneurs.
This owes itself to two factors: 1- Most Muslims hesitate from borrowing from banks which have to compulsorily lend on the basis of interest. Interest, they argue, is prohibited under the sharia as explained by the clergy. 2- They fail to realize that the rate of interest in the banks is kept to the minimum. But while failing to avail of these schemes they land into the clutches of the private moneylenders who suck the blood out of them leading to the usurpation of their properties.
This is an unenviable situation for the individuals of the community and requires cool contemplation of those who explain the postulates of the sharia. As is the old axiom, there are no free lunches, credit is not to be obtained without a cost from anywhere today. The nationalized banks are the ones that lend them on the most minimum interest. By ignoring them and getting into the clutches of private borrowers and ending up losing properties and other valuables is a greater tragedy. It is time the people in the know of sharia and the contemporary economic situation understand the realities of the time and guide the community on the right lines.   
The article originally appeared in Salar, Urdu daily from Bangalore and has been translated into English by Islamic Voice with the author’s permission.  
The author is a retired divisional manager of the Canara Bank.