Aliens in Calicut : Exploring the Scope of Islamic banking in Kerala

Mujeeb Jaihoon on the scope and benefits of Islamic banking practices, with a focus on the potential of introducing them in Kerala, India.

A UFO once landed in the city of Calicut. The aliens disembarked from the spacecraft and began roaming the streets and villages of the city in Malabar. After a while, they contacted their HQ on Mars and said, “Negative.” Apparently, they planned to install their relay station so that the Earthlings could stay in touch with their planet. But Calicut’s choice had the following flaws:

1.There were only a few skilled experts who could operate that facility.

2. There was hardly an educational system capable of producing a workforce to operate and carry out the necessary research and development for its future evolution.

3. The residents of Calicut also could not afford the cost of running and maintaining it.

I am honored to present a sociological approach to the study of the scope of Islamic Banking in Kerala. Despite my limited competence, I hope to shed light on certain overlooked opportunities, without delving into the theoretical details which other speakers in this session will cover.
My conclusions were drawn from readings and interactions conducted two years ago during a visit to Kerala, where I shared my perspectives on this topic with scholars and leaders. I am grateful to the organizers for inviting me to this scholarly function and giving me the opportunity to share my thoughts.

The Doctor Is Sick

As believers, we are called to see good in all that happens around us, and the current global crisis presents an opportunity to highlight the positive aspects of Islamic banking practices. For too long, we have accepted the Western concept of the financial system as absolute and eternal. We continue to teach our young ones this flawed doctrine, and nobody has dared to question the ethics of Wall Street and its greedy investors. Recently, an article published in the New York Times quoted a Hong Kong investor saying, “It is hard for America to take its own medicine that it subscribed so successfully for others. There is no doctor anymore. The doctor himself is sick.” In the same article, Wall Street is blamed for being “fuelled by cheap credit, low standards and high greed.”
This is where Islamic Banking stands apart, as it is based on mutual help and risk sharing. Let us embrace this ethical and sustainable banking practice and make a positive impact on society.

Benefits Of Islamic Banking

The Islamic financial instrument called ‘Sukuk’ is often projected as the potential solution to the world’s economic problems:. As experts suggest, conventional banks are on the verge of collapse, while Islamic banks that practice Sukuk have remained virtually untouched. The United Kingdom Treasury and Ministry of Finance are considering the use of Sukuk as a debt management tool in the wholesale sterling and yen markets. It is worth noting that, despite having a Muslim population of less than 2 million, the UK already has six Islamic banks, three of which were established in 2008.

However, we must understand that a bank, like any other corporate entity, incurs expenses such as staff salaries, electricity, water, rent, and other overheads. Technically speaking, Islamic banking is not about charity, and the profit motive is essential for any business. However, Islamic banking cannot charge interest for this purpose.

Islamic banking is still under an evolving stage and has not yet reached its zenith. Service charges in an Islamic bank may be higher than in other conventional banks, but we should perceive such charges as fees paid for higher quality services. Just as we are willing to pay a higher price for high-quality fruit in our grocery shopping, we should also be delighted to pay extra for using a service that would save us from hell-fire.

Islamic Banking in India

The Indian government has expressed interest in introducing Islamic banking in India, and the RBI has conducted studies on this subject. The Raghuram Rajan Committee on Banking Sector Reforms has recommended the introduction of interest-free banking in India, which is also known as Islamic banking. “Interest-free banking does not mean charity,” the committee says. “It only means that the investor/lender does not receive interest but is compensated through a form of profit-sharing.”

Islamic Banking in Kerala

Let’s return to the topic of Islamic banking in Calicut, or Muslim Kerala. The aliens in the UFO story provided three reasons for their negative attitude towards implementing a relay station in Calicut, but let us substitute the relay station for an Islamic bank in Calicut.

Muslims in Kerala have three distinct characteristics that make them ideal for adopting Islamic banking:

Potential population

Muslims are the second-largest community in the state, and in districts like Malappuram, Calicut, and Kannur, they outnumber other communities.

Leadership

The community is led by capable political and religious leaders who have paved the way for their prosperity compared to their counterparts in other states in India. Several groups run schools and colleges in a systematic and organized manner, and the political will to implement Islamic banking is readily available. Institutions of higher religious learning can provide the intellectual backing required for the research and development of Islamic banking concepts.

Wealth

Finally, there is no shortage of funds since Muslims in Kerala are possibly the wealthiest in the country, with the highest standard of living. “There is at least Rs5,000 crore of unclaimed interest in Kerala alone. People prefer to put their money in gold or jewelry, which is the worst kind of investment from an economic point of view,” says an expert.

These factors necessitate the establishment of Islamic banking in Kerala much earlier than in any other part of India. Around 200 institutions exist today in Kerala that are working towards achieving this goal, according to Sheikh Mohammed Karakunnu.

There are organizations such as the Indian Association for Islamic Economics (IAFIE), but the banking model has yet to become mainstream. The RBI has yet to recognize them as legal entities. However, the bright side of life is that Islamic banking is seen by everyone as a viable financial system rather than a religious move by religious fanatics. Many conventional banks have opened separate Islamic units that offer sharia-compliant products and services.

It is interesting to note a comment by a lady investor, Margaret McDougald, who says, “I strongly believe that if we had operated on what I understand to be Islamic principles, we would not be in the current global mess we are today. I write not as a Moslem but as a Christian with great respect for Islam, and I studied Islamic finance to understand how it was possible to operate without usury. The principle appears to be one of shared risk, leading to shared profit or shared loss. I am looking to put some (small) savings into an Islamic Bank as this seems to be a better way of doing things.”

It is crucial to bear in mind that Islamic Banking revolves around an ethical perspective of the profit-motive in our lives. The current global economic breakdown is a consequence of savage greed without concern for human welfare or divine intervention.
Banks are an integral part of our community. While individual profit-motive is not a crime, the desire to achieve it cannot result in the deaths of thousands. Allama Iqbal, the Poet-Philosopher who authored the Book of Economics titled “Ilm-ul-Iqtisad,” talked about the exploitation of banks in these words:

“In splendor, in seduction, and in grace,
The buildings of banks outsoar the Houses of God.
In appearance, it is trade, in reality gambling,
Profit for one, for thousands sudden death.”

Delivered in 2009.