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Financial Exclusion of Indian Muslims

Published on-  20th February 2008

Muslims as Minority Community in India:

Indian Muslims well fought and sacrificed their lives for freedom of India, but perhaps the incident of partition shadowed those sacrifices. Those Muslims who choose India as their own country fall into minority; and their successors, who have nothing to do with partition, paying the price of being a minority. Today, Muslims are rated as the most under-privileged community like Scheduled Castes (SCs) and Scheduled Tribes (STs) in India. The feeling that Muslims are deprived of sharing development fruits has caused great sense of alienation among the Muslims. With lot of showmanship, it was decided in 2005, by present central government to investigate the plight of Indian Muslim.

Even Justice Sachar Committee treated Muslims as minority!

This investigation report, popularly known as ‘Sachar Committee Report’ published in 2006, revealed the nature and degree of Muslim backwardness; but some section of the report did not justified with the fact findings. It was a report on minority community prepared by ruling government. As it would not be possible to discuss all those injustices in this paper, with due regard and thanks to Justice Sachar Committee members; I would like to point out some points related to financial exclusion of Indian Muslims.

 

Unjust Sachar Committee Report:

Since the report was prepared by members of civil society, and the real observations and feelings of general Muslims were not covered in the said report. In the report, it was cautiously monitored that Indian Muslims would not be allowed to have a separate financial system for their religious needs. Thus not only the demand of interest free banking by Indian Muslims was denied, the figure of actual financial loss to the community in absence of Islamic bank was not revealed.

 

Why Interest-free Banking and Finance?

Interest (Riba) is such a forbidding sin in Islam that the Creator of Universe Has Announced War against those who take Riba. According to Islam, those who devour Riba would be under fire (Hell) forever after death. Riba is such a cruel practice against humanity; which ruins the sublime feelings like brotherhood, sacrifice, charity and help etc. from our society and develop a ruthless society, where instead of ‘humanity’; the capitalist forces rules the society. In fact Riba is just not meant for a value addition as ‘interest’ over principal sum of deposit or lending, but it could be defined as a practice to take undue advantage from the needy on providing conditional credits. Whereas interest-free economy not only promise to build stable monetary and fiscal system, but also promotes sublime feelings like equality, partnership, sharing entrepreneurship risks, and more importantly it tends to minimize economic disparity and boost economic justice and welfare.  

 

Attempt to deny demand for Interest-free banking:

The demand of interest free banks for Muslims as raised before delegates of Justice Sachar Committee was not only denied but perverted with just following three sentences.  

 

“Some felt that it was desirable to create separate financial institutions for Muslim entrepreneurs. Others argued that the existing minority financial institutions have been a failure and a decentralized micro-credit schemes through self help groups (SHGs) is the most viable option. Some existing SHGs for Muslim women entrepreneurs that have been successful were cited as examples that could be emulated.” 

 

Here in the first sentence; it seems that the committee with intention to avoid discussing over ‘Interest-free banking’ instead of clarifying the nature of desired ‘separate financial institution’ for Muslims just said that “Some felt that it was desirable to create separate financial institutions for Muslim entrepreneurs”. The very next sentence further sliced the demand by reporting others argument about minority financial institutions that “the existing minority financial institutions have been a failure” (means Muslims are inefficient to manage interest-free financial institutions). Again with intention to avoid any possible uproar over interest-free banking, instead of discussing about causes of these failures (and also about role of government authorities in such failures), in the same sentence, the committee tried to divert the topic towards Micro-Credit Schemes, quoting that “and a decentralized micro-credit schemes through self help groups (SHGs) is the most viable option”. The third sentence further strengthens this attempt of diversion by quoting that “Some existing SHGs for Muslim women entrepreneurs that have been successful were cited as examples that could be emulated”.

 

Thus without citing the ‘taboo’ word ‘Islamic Banking’, the government officials not only denied the demand of interest free bank in India and left the Muslims deprived of their religious need to transact interest free banking; but also tried to divert Muslim’s attention from Interest-free Banks to Micro–Credit Schemes, where the rate of interest is relatively higher than SCBs, so that scope to charge higher interest to the community could grow.   

 

Muslims have lowest employment share in RBI:

About lower percentage of Muslims in banking sector, the committee writes that –

“The Census, 2001 data (Fig. 6.12) shows that the percentage of households availing banking facilities is much lower in villages where the share of Muslim population is high.”

 It indicates that generally Muslims avoid interest based banking and wherever the community is higher in concentration, they tend to operate interest-free financial institutions. The committee further mentioned that -

 “The representation of Muslims is very low at 2.2% in bank employment overall, just 1.7% at higher levels and 2.5% at lower level positions. “

 “Similarly, available estimates suggest that the number of Muslim employees in the Reserve Bank of India (RBI) is 150 out of nearly 19000 employees.”

 

The committee did not like to discuss about reasons of lowest percentage (0.78%) of Muslims in RBI and SCBs (2.2%). The intention could be simply to avoid any discussion over possible reason - ‘prohibition of interest in Islam’ and thus real need of interest-free banking, which seems unacceptable to RBI and SCBs. Unless our policy makers take some policy initiative to recognize the real demand of interest-free banking for Muslims, percentage of Muslims in banking sector is not going to increase.

 

Manipulated observations and recommendation by Sachar Committee:

The committee did not justify with some of the following sections of recommendations related to banking and finance.

 

“The chapters on Bank Credit and Government Programmes have highlighted the fact that flow of credit to Muslims is quite limited. While part of this could possibly be due to lower demand for credit due to low income levels of the Community, low access to credit cannot be ignored. Lack of access to credit is a more serious problem for the Community as a significantly larger proportion of workers are engaged in self-employment, especially home-based work.”

 

Here in above observation, it was truly reported that flow of credit to Muslims is quite limited; but wrongly interpreted that it might be due to low income of people, because already in chapter 6, the committee has found and quoted the following facts contradictory to the above statement of low income as a reason for low credit demand.

 

“Muslims constitute about 12% of all ASCBs account holders. ... It is noteworthy that the share of Muslims in the ‘amount outstanding’ is only 4.7%”.

 

Unfair Recommendation by Sachar Committee:

Moving ahead with intention to promote interest based banking among Muslims instead of recognizing demand for interest-free banking, the committee further recommends the following -

 

“The Committee, therefore, recommends promoting and enhancing access to Muslims in Priority Sector Advances. Any shortfall in achievement of targeted amount in minority specific programmes should be parked with NMDFC, NABARD and SIDBI and specific programmes should be funded with this amount. However, the real need is of policy initiatives that improve the participation and share of the Minorities, particularly Muslims in the business of regular commercial banks” 

 

The committee in a way told Indian Muslims that they should either forget prohibition of interest in Islam and start participating in interest based banking as other communities do participate; otherwise deprive to the credit system. This is very clear from the fact that the committee instead of discussing about prohibition of interest in Islam and financial exclusion of Muslims by SCBs, advocated inclusiveness of Muslims in SCBs business.

 

Sachar Committee advocating practice of financial exclusions of Muslims:

About role of specialized financial institutions like SIDBI and NABARD, the Committee submitted the following recommendations. 

 

“The Committee also recommends that the coverage under Public Programmes should be extended to include more schemes and should also include lending by NABARD and SIDBI. SIDBI should set aside a fund for training for minorities under its Entrepreneurial Development Programme. Such programmes should not only aim to improve skills of artisans in traditional occupations but also reequip them with modern skills required to face the adverse effects of globalization in their area of artisanship. Given the substantial presence of Muslims in these occupational groups special attention should be given to them.”

 “While the available data is inadequate, there is a widespread perception that the participation of Muslims in the Self Help Groups (SHGs) and other micro-credit programmes is very limited. A policy to enhance the participation of minorities in the micro-credit schemes of NABARD should be laid down. This policy should spell out the intervention required by NABARD through a mix of target and incentive schemes based on the population percentage of Muslims in the village in order to enhance the participation of Muslims in micro-credit. In any case, data on the participation of different SRCs in such schemes should be collected and shared with the RBI or the NDB. The implementation of such schemes may need to be tailored to specific situations.”

In the above recommendations, the committee not even liked to discuss about reasons and consequences of less than 4% share of Muslims in finances extended by NABARD and even less than 0.48% share in loans granted by SIDBI. The above recommendation of the committee allow us to think that, the committee wants to see continued financial exclusion of Indian Muslims by SIDBI and NABARD.

 

How Muslims are financially excluded from Credit system?

Analysis of data available at Sachar Committee Report shows that there is annual financial exclusion of Indian Muslims worth over Rs. 22,000 crores. The following table shows how Indian Muslims are being financially excluded.  Due to errors in data of 25 SCBs, the Sachar Committee used data of only 31 SCBs. The analysis of these data shows annual financial exclusion of Indian Muslims worth Rs. 11,170.40 crores.

If we assume that the other 25 SCBs whose data been excluded by Sachar Committee would follow the same ratio in deposit and credit amounts, the annual estimated deposits and outstanding loans at 25 SCBs could be as following:-

If we sum up the figures of 31 and 25 SCBs deposits and loan amounts, there is estimated annual financial exclusion of Indian Muslims over Rs. 15,025 crores due to deficit in deposit loan ratio for Muslims.

Assuming that deposits at Private and Cooperative Banks along with Muslim NRIs contributions in deposits accounts 1/3^rd of SCBs individual deposits; total amount of financial exclusion will go beyond Rs. 22,000 crores.

The other way of measuring financial loss to Indian Muslims:

In other part of the report, the Sachar Committee says that -

 

“In absolute terms, the amount outstanding as at the end of March 2005, for Muslims was Rs.15685 crores, while for other minorities it was Rs. 19671 crores, as against the total PSAs of Rs. 328755 crores by all scheduled commercial banks.” 

 

So, it is clear from the above statement of the committee that, Muslims share in PSA accounts (12%) is closure to their percentage share in population (13.43%), moreover the demand for Credit by Muslims is much higher as compared to granted loans under PSA by SCBs. This reflects that Muslims are under financial loss of Rs. 23,766 crores in terms of credit through SCBs as their share in outstanding loans under PSA is just 4.7% compared to 12% share in PSA accounts in ASCBs.  For a community with higher dependency rate on self employed activities, such credit loss tends to push the community further backward.

 

Analyzing the facts, we may conclude that SCBs are more interested in mobilizing deposits from Muslims and neglects them while it comes to granting loans. If this financial exclusion of the community had been checked earlier, the percentage of Muslims living below poverty line would have dropped considerably.

 

Sachar Committee supported Economic Assassination of Indian Muslims:

For Indian Muslims, already suffering from severe economic backwardness, this sort of financial exclusions is proved to be an act of economic assassination of Muslims by so called secular democratic system. The Justice Sachar Committee Report should have pointed out this financial exclusion of Indian Muslims and suggested measures to check this exclusion. Should our secular democratic system not allow Indian Muslims to transact interest free banking to get rid of Riba which is strictly prohibited in Islam? Instead the Committee suggested financial inclusion of Muslims through interest based banking and financial system. If Indian Muslims are orthodox about Islamic ethics, our officials are orthodox about anti Islamic banking practices.

 

This financial exclusion harms our economic growth:

Majority of Indian Muslims are financially poor and orthodox about Islamic teachings. It is practically just not possible to induce Indian Muslims enthusiastically participate in interest based banking and financial businesses. It is a snitch among Indian Muslims to indulge into interest based monetary system. This snitch is a factor of financial exclusion of major section of Indian Muslim community. This exclusion may not be good for our economic growth targets. The financially excluded section would reflect poverty and subdue the inclusive growth target. The community with 67% poverty and over 90% workers associated with unorganized sector, the Indian Muslims need special financial facilities. 

 

Committees on Financial Inclusion ignoring Muslims:

The issue of financial exclusion is off course a matter of concern for the nation. The Committee led by Dr. C. Rangarajan submitted its report in January 2008 but neither this committee did not comprise any member from Muslim Community, nor it said a single word about financial exclusion or inclusion of Indian Muslims. It is not supposed that such committee should focus the report on community base study, but since their were worth mentioned report on financial exclusion of Scheduled Castes and Scheduled Tribes, it look desirable to have at least a word about Muslims who are not far better to our SCs and STs.

 

Moreover the committee did not served the purpose with Terms of Reference to identify the barriers confronted by vulnerable groups in accessing credit and financial services, including supply, demand and institutional constraints.  It was required for the committee to interact with vulnerable section to understand the real barriers for their financial inclusion, whereas the committee has no incidence of direct interaction with such group. Moreover the committee did not study the financial exclusion of vulnerable section in urban areas.

 

The government is quite sincere about this report and already approved some of its suggestions and plans are framed on basis of this report. Even the parliamentary consultative committee comprising thirteen members to study this report has no Muslim representation. After this consultative committee’s meeting held on 23^rd April 2008, it was asked to some committee members that how is it justified adopting a report for national level policy and planning which excluded its minority community issues? No member gave any answer so far.

 

Financial Sector Reform Report also ignores Indian Muslims:

After Dr. C. Rangarajan Committee Report, the planning commission set another High Level Committee under chairmanship of Dr. Raghuram Rajan to suggest financial sector reform. Even this committee has no member belonging to Muslim Community. The committee intervened to over 82 officials before presenting draft report on financial sector reform. Unfortunately there was no Muslim among the intervened people. More unfortunate to note that this committee has also not taken the matter of financial exclusion of Indian Muslims nor suggested any proposal to rectify the problem confronted with Muslims.

 

Immediate Policy Initiatives required:

It is high time our government authorities should consider the sensitiveness of this issue and handle it tactfully. Since majority of Indian Muslims are poor and orthodox, their financial exclusion is mainly due to prohibition of interest in Islam. So unless Indian Muslims is allowed transacting interest free banking, their financial inclusion is not possible. Without financial inclusion of Indian Muslims, their economic development is not possible. And without economic development of Indian Muslims, it is not possible for India to achieve inclusive growth. So the national policy makers need to pay attention over it. The feasibility of interest-free banking and its compatibility with RBI, may be discussed in exclusive meetings with advocates of interest-free banking with RBI legal advisors.

 

Time is running out for justice!

Indian Muslims seek justice over their financial exclusions and demand for permission to open interest-free banking. If they get permission, it could pacify; otherwise it is not possible for the authorities to compensate losses of Indian Muslims due to this financial exclusion.  Indian Muslims need proportionate share in policy making. The bodies and committees formed to resolve economic policies should comprise of Muslim representatives. The committees where Muslims are not incorporated should at least interact with Muslim communities.

 

Special Credit Policy is required for unorganized sector economy:

So, before the anti UPA government air blow, the ministers and economic analysts should come out of projecting over 9% growth rate by screening formal sector indicators like stock exchange and RBI estimates.  Its time to listen the people’s voice associated to unorganized sector that constitute 90% human capital of Indian economy.  

 

Orthodox Muslim Community seeks justice:

The orthodox Indian Muslims seeks justice in terms of financial disadvantages to the community in absence of Interest free banking facility. The orthodox Indian Muslims may not be pleased with announcement of grants through budgets, instead looking opportunity to perform religious practice in banking and finance. It is not that Muslims demand for separate financial system on base of religion, but seek attention of the policy makers to enable Indian Muslims get escape from interest to follow the religious ethics.  

 

 

Syed Zahid Ahmad  

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E Mail - aicmeu@yahoo.com