The sudden deferral of the launch of the SBI Mutual Fund’s Shariah-compliant scheme last November has prompted several MPs to question if the government was prejudiced with the word ‘Shariah’. The financial instrument, they said, was vetted and approved by all agencies.
Janata Dal (U) MP KC Tyagi, along with NDA-allied MPs, like SAD’s Naresh Gujral and Rajeev Chandrasekhar (Independent) are questioning the postponement of the scheme.
“Just the name Shariah was reason for this government to block this initiative, otherwise approved, vetted and set for a launch last year. Is this their commitment to inclusion and conveying a sense of fellowship to its citizens,” asked Tyagi.
In letter to KC Tyagi on May 19, Jayant Sinha, minister of state for finance, said this Mutual Fund scheme was deferred due to “operational constraints arising out of the inputs received from various participants in the pre-launch meetings.”
SBI Mutual Fund, after detailed studies, internal reports and due procedure, was set to launch the Shariah-compliant scheme on December 1, 2014. But hours before the launch, the institution issued a public notice on November 30, 2014, and informed investors that the new fund offer (NFO) had been deferred.
Tyagi had written to finance minister Arun Jaitley on March 30, 2015, asking the “causes of this last minute deferment as the minorities and the marginalised are eagerly waiting its implementation to invest their savings. The non-resident Indians (NRIs) , particularly in the Gulf wish to invest their surplus in this type of mutual fund.”
What makes this ‘Shariah compliant’ essentially is the offer of investment minus interest, which is at the heart of ideas of Islamic banking. However, the buyers of such instruments are not just Muslims. Countries like the United Kingdom, France, Singapore, and Brazil have mutual funds based on a no-interest principle and are given names like ‘Alternate banking’ and ‘Participatory banking’ or ‘Interest -free banking’.
Proponent of Islamic finance in India H Abdur Raqeeb, Chennai-based General Secretary of the Indian Centre for Islamic Finance, said “Islamic banking is not exclusive to Muslims, the TATA Ethical Fund and Taurus Equity Fund are working well and in Taurus for instance, about 40 per cent of investors are Jains.”
Elaborating on reports by several financial consultants such as Standard and Poor’s which recently compiled a report on international Islamic or interest-free finance and cited countries like Malaysia, where interest-free sovereign ‘Sokuk’ bonds go into infrastructure finance and function within a proper regulatory framework, Raqeeb asked why this cannot be replicated in states even outside Kerala.
The report of the committee on financial sector reforms, ‘A Hundred Small Steps’ submitted in 2012, headed by Raghuram Rajan, the governor of the Reserve Bank of India (RBI) now, and having as one of its members, had recommended interest-free banking as a way to draw in those excluded from the formal financial structure and termed interest-free banking as “in consonance with the objectives of inclusion and growth, through innovation”.
In his letter to Tyagi, who also heads the Parliamentary Committee on Industry, Jayant Sinha, referred to an RBI Internal Committee that was examining the issue of introduction of interest free finance.
The “feasibility” of the “legal/technical and regulatory issues” pertaining to Islamic banking is under the consideration of RBI, he wrote.