Published On:07 February 2012
Posted by Indian Muslim Observer

ISLAMIC FINANCE: Open Letter to Chief Minister of Kerala H.E. Oomen Chandy

[I personally thank Rushdi Siddiqui, Global Head, Islamic Finance and OIC Countries, Thomson Reuters (global news and information company), for taking out his time and writing exclusively for IndianMuslimObserver.com. Mr. Rushdi Siddiqui in his impactful article stressed and strongly advocated that India take up Islamic Finance at the earliest, which would prove to be beneficial in the country's long term interest, particularly at a time when the world is facing financial turmoil. This is, in fact, a perfect guide for the government to seize the initiative here and now. 'Participation' banking is surely the best remedy to integrate this important financial tool for the well being of nation and greater participation of the Indian Muslims. I also appeal to the Government of Kerala and Government of India to seriously consider Mr. Rushdi Siddiqui's suggestion and implement it without further delay. -- Danish Ahmad Khan, Founder-Editor, IndianMuslimObserver.com]

Open Letter to Chief Minister of Kerala H.E. Oomen Chandy

MEMO TO: Chief Minister Oomen Chandy
SUBJECT: Participation Banking & India: A New Approach
FROM: Son of the Soil

Dear Sir,

Islamic finance for India is led from behind. Today, a ‘no’ to Islamic finance in India really means ‘yes, to eventual Participation Banking,’ but it’s preconditioned upon small victories over time.

A recent Wall Street Journal article, announcing Starbucks partnership with Tata, raised the important collateral issue of India needing some good news as corruption scandals, ineffective leadership, removal of welcome mat for large retailer like WalMart, etc., has made India lose some of its BRIC shine.

Let's see what else would allow India, the place of my birth, to grab the attention of nearly 2 billion Muslims, deepen business connections to the 57 Muslim countries, and become a true global financial hub.

What about introduction of ethical finance in India as ‘conventional’ finance has lost some of its shine and trust by ‘the man on the street.’ The Occupy Wall Street (OWS) movement has added an important ‘stakeholder of conscience,’ propagating economic justice, for the financial capital markets. In late 2011, an OWS protestor in London held up a sign, ‘Let’s bank the Muslim way.’

Surrounding India

Islamic finance has surrounded India, as neighbouring countries, Pakistan, Afghanistan, Bangladesh, and Sri Lanka, have realized the importance and benefits of a financial inclusive approach. India has the second largest Muslim population in the world, between180-200 million, after Indonesia, 250 million, yet the world’s largest democracy is not acting very democratically for ‘participation’ banking.

Overcoming Reluctance

There have been several countries reluctant to Islamic finance, but now have welcomed it with open arms and are presently establishing a level regulatory playing field:

France, several years ago said no to the ‘hijab,’ but now says ‘yes’ to Islamic finance, and was led by former finance Minister, Christine Lagarde. Is it more about tapping the GCC petro-liquidity surplus rather than the five million Muslims in France? There is no retail Islamic bank yet in France!

Oman, the only GCC country without any official Islamic finance, welcomed Islamic finance in 2011by the Sultan’s decree. One of the major factors was to bring back the billions of Omani dollars invested in Shariah compliant manner outside of Oman. Query: Are billions of Shariah compliant dollars invested outside India by Indian Muslims?

Islamic finance, once propagated as tool of catering to extremists, is now readily discussed to be adopted by the new governments in Tunisia, Egypt, Libya and other Arab Spring influenced countries. Do these ‘new’ democracies know something that the world’s largest democracy is missing? The fear mongering of Shariah was the ‘smoke and mirrors’ argument to deflect the domestic deteriorating economic situation and keep the dictators entrenched in power.

Bermuda, a hub for insurance, wants to be the hub of Islamic finance for the western hemisphere. There are only a handful of Muslims in Bermuda, and their interest is only about accessing the petro-liquidity surplus and not politics nor promoting a religion. 

However, none of the above countries is India with all her challenges. In saying Islamic finance exists elsewhere does not mean it will be welcomed with open arms in India. Thus, the present approach to Islamic finance in India needs to be supplemented if not revisited.

India’s Cheerleaders

Let's review some of the often used ‘pros’ for having Islamic finance in India, and understand why its still a Friday Khutbaah (preaching to the converts) or pep talk/slogan stage.

1.   Islamic finance is in many non-Muslim secular countries like US (note: no licensed Islamic banks in US), UK, Singapore, Luxembourg, Hong Kong, etc., so why not in the world’s largest democracy, India? Islamic finance is wholesale oriented in most of these countries, and it must be noted Islamic banking is not in most of the 57 Muslim countries in a meaningful manner (financial inclusion).

However, the lessons from UK’s experience in Islamic finance may be the closest country blue-print for India. Islamic finance has been in the UK since the early 1980s; managing money of GCC high net worths in Shariah compliant manner, structuring acquisitions, Murabaha liquidity via commodities on London Metal Exchange (LME), variety of Islamic funds, support of high profile public official, from Eddie George (former governor of the Bank of England) to Gordon Brown (former prime minister of England), removal of double tax duty on Islamic mortgages, etc., eventually led to GCC Islamic financial institutions launching a FSA approved deposit taking Islamic retail bank, Islamic Bank of Britain (IBB), in 2004.

Has the retail Islamic banking experience in the UK deemed a success after nearly eight years? It should be noted that IBB needed a capital injection from parent company about two years ago.  To date, there has not been another deposit taking Islamic bank launched in UK or any other EU country, combined population of about 25 million Muslims.

Notwithstanding the UK’s financial inclusion approach to all forms of banking, the country is still a secular democracy, and Shariah is referenced to mostly family related matters, much like in India.

2.   Multinational Banks like Citi, HSBC, Standard Charter, BNP Paribas, etc., have Islamic windows and subsidiaries. Yes, but these same institutions do not seem to be lobbying for Islamic finance in India or presenting/sponsoring at Islamic finance events in India. Has their research concluded something different than the advocates (or cheerleaders) of Islamic finance today in India?

3.   Islamic finance will result in financial inclusion of the under-banked and the non-bankable in India irrespective of religion. Yes, but Islamic finance has, at best, touched 1-2% of the 1.8 billion Muslims, the halal food industry has not only greater reach, traction, but also deeper penetration, including the non-Muslim countries like US and UK. The ‘eggs in one basket,’ a deposit taking Islamic bank or investing in screened companies from BSE, may not be the best approach for India. Have such approaches worked, notwithstanding surveys and studies?

4.   Islamic finance in India will open up the flood gates for GCC Islamic investors, well, then, why aren’t the Islamic windows and subsidiaries of multinational banks opening shop in India? The remittance from the enlightened (overseas) Muslims in Kerala is being considered to establish Islamic finance in Kerala. Its about the money, and everything else is academic, and the wise leadership understands.

5.   Islamic equity indexes have been launched in India, most recently by BSE, but we don’t see large number of funds or assets under management. May be because an equity culture does not yet exist amongst the Muslims in India, as most are un-bankable.

The below table, from Lipper, shows the Indian Islamic equity funds and one Islamic exchange traded, and the small assets under management stand out immediately. It should be noted one of the largest Islamic equity funds is form the US, Amana Growth Fund, and has $2 billion under management, and majority of the investors are not Muslims!
Furthermore, most of the international Islamic funds and ETFs have very little exposure to Indian compliant companies, why?

[Note: In 2008, Dow Jones Indexes launched the DJ Dharma Index, aligned with Hindu principals, however, it was later decommissioned, what happened? Is faith based investing is not important to people of faith?]

6.   Islamic finance is not just for Muslims, so why not use another word that conveys its essence but is less politically sensitive: Participation banking implies risk sharing (not transferring) and financial inclusion. Turkey uses the Participation term (used to be Special Finance Houses), as Shariah conjures up negative connotations in the country and globally, including a recent poll of Muslims in the US.

Another Approach?!

There is saying, ‘if it ain’t broke, what you gonna fix?’ Is the present approach to Islamic finance in India, primarily focusing on establishing a deposit taking Islamic bank and investing in screened companies, broke? Incomplete? Or wrong starting point?

Is/Are there other lower hanging fruits for Islamic finance for India, where small achievements over shorter periods of time will (1) dispel fears of Shariah and (2) reduce ignorance and ensuing hostility with (3) business results that cuts across Muslims, Hindus, Bhuddists, Christians, Jains, etc.. Thus, the local advocates of Islamic finance will not need to use examples of Islamic finance success in other countries and have multinational banks with Islamic windows and subsidiaries lobby for Islamic finance for India.

So, what are some of the lower hanging fruits? There are many suggestions, from Takaful (insurance) to Islamic industry body (equities) and so on, but lets work with opportunities that we have better control over and build bridges of cooperation with Islamic finance stakeholders. Thus, its a combination of understanding what presently exists in India and repositioning it (halal food industry, ‘Faith based Tourism,’ venture capital), India becoming a member of an international body (Organization of Islamic Countries), to an alternative to the debt induced micro-finance (micro-funding).

Obviously, education, education and education combined with a professional approach will, at minimum, raise awareness and offer the needed credibility for a financially illiterate and scam prone community to demand Islamic finance. Thus, money and numbers are important pull factors.

Neighbourly Competition

As stated above, India is surrounded by neighbours where Islamic finance is available. For example, Islamic banking assets in Pakistan is about 6% of total banking assets, and its taken a few decades to get to this stage. Is it possible for India to surpass Pakistan for Islamic banking assets, not as percentage of overall banking (which is much larger), but the total volume amount in a shorter period of time?

Many times neighbourly competition brings out the best in the ‘product or service,’ i.e., Dubai and Qatar or Malaysia and Indonesia, offering and provides customer education transparency and institutional accountability.

What if Islamic banking assets in India become larger than Pakistan, could it encourage India to become member of Organization of Islamic Countries (OIC) and access funding from the Islamic Development Bank (IsDB) for needed Infrastructure projects in India?

Halal Food Industry

The $640 billion halal industry has not only a greater reach, but also a deeper penetration in Muslim and non-Muslim countries, including India. There is a common denominator amongst the Halal, Kosher (Judaism), and the vegetarian diet of our Hindu brethren! Its not only about slaughter according to the religious book, but the knowledge about ingredients in products, which answers an important question: is there a ‘meat-by-product’ in my food?

For example, India has not only halal restaurants, halal certification bodies, but also exports halal goods to Muslim countries with Islamic finance. In having Islamic trade finance offered by banks, will it increase Indian [halal] exports?

The beacon burger in the US or UK or the veggie burger in India has not become extinct because of halal demands by the Muslims. Thus, halal, much like Islamic finance, is about business and common shared values, not propagating religion or backdoor conversion.

In April 2011, at the World Halal Forum with former Prime Minister of Malaysia, Abdullah Badawi, the SAMI Halal Food Index was launched. Today, the publicly listed halal food companies in the index are only from the Muslim countries, and we expect to expand to include halal food companies from India, Sri Lanka, Thailand, and so on in the future. 

Now, what about building halal food parks in free trade zones in, say, Calicut, Kerala near/in the proposed Knowledge City? It would be about jobs, foreign investment, support industries, etc. 
For example, Malaysia, Indonesia, Thailand, Brunei, Pakistan, etc., have positioned themselves as halal food hubs, however, there is no definitive conclusion as more time needs to pass. It should be noted, there are no halal food parks in GCC, and yet these six countries import about $25 billion worth of halal foods and expected to be $54 billion by 2020.

These are Interesting implications for India, and (wholesale) financing such a park, via Sukuk or Murabaha syndicated loans, presents a convergence between halal and Islamic finance. It should be noted no Muslim country has started the conversation concerning the convergence before the launch of the SAMI Halal food index.

Faith based tourism

Type in ‘Islamic tourism and India’ in the yahoo search engine, and you get a result of 48 million! Tourism in India is because of history, culture, diversity, languages, monuments, religious festivals, etc., hence, a major revenue source and large source of employment. 

India, like Turkey and other silk road route countries, has a wonderful story about Muslim/Islamic contributions to civilization, culture and architectures including tombs, mosques, forts, saint’s graves, and others. Some notable places include:

New Dehli: Red Fort, Qutb Minar, Jamia Masjid, Tomb of Humayun & Akbar, etc.

Agra: Fateh Pur Sikri (capital of Moghal emperor, Akbar the Great), Buland Darwaza (monumental gate), Sufi saint (tomb of Sh Salim Chishti), Taj Mahal, Agra Fort, Pear Mosque, etc.

Jaunpur (Sharqi Dynasty): Atala Jami Masjid, Shahi Pul, etc.

Kashmir: Moghal Gardens, Dal lake, etc.

Hyderabad Deccan: Chand Minar, Gulbarga, Jahaz Mahal (part of palace in Mandu), etc.

Ahmedabad: Jama (Friday) Mosque, Tin Darwaza, etc.

Lucknow: Imam Bara- Chotaa and Bara- (built by Nawab Asaf al Daula, 1784), Shah Najaf, Hazrat Mahal Park, etc.

Sir, it may be time to invite the exhibition that shows ‘1001 Inventions: The Enduring Legacy of Muslim Civilization,’ to Kerala, it has been in London (launched by Sheikha Mozah, dynamic wife of Emir of Qatar), Istanbul (launched by Prime Minister, Recep Tayyip Erdogan), Abu Dhabi (launched by HH Sheik Nahyan bin Mubarak Al Nahyan, UAE Minister of Education & Science), New York and presently in Los Angeles (launched by US Secretary of State, Hillary Clinton) and viewed by two million people and counting.

One can say that ‘faith based tourism,’ including an Islamic Museum, in Kuala Lumpur, Malaysia was the important precondition to investments from the GCC.

Thus, in expanding the bandwidth of tourism, to include faith based/Halal tourism, its about reconnecting to India (for Indian Muslims and those interested), its about the first step towards investments, its about establishing local revenue and employment.

Finally, faith based tourism in India can be linked with one of India’s emerging strengths: medical tourism. Its well documented that obesity-cum-diabetes is a major issue in all the GCC countries and billions of dollars are being allotted for medicines, when a ‘wellness’ approach would work better. Thus, faith based tourism brings in targeted customers from GCC needing medical services, its about business.

Venture Capital

I have travelled to more than 20 Muslim countries, including presented in Malaysia on Islamic venture capital, and, unfortunately, the venture capital environment does not yet exist in the 57 Muslim countries. However, India’s Bangalore region is often mentioned in the same sentence as the global VC hub: Sand Hill Road in Silicon Valley.

In fact, venture capital, essence of Islamic finance, is an established asset class in the ‘conventional’ world, however, its not even a rounding error in Islamic asset/wealth management.  Today’s Islamic finance is the risk averse, Murabaha, hence, a possible reason why ‘institutional’ Islamic finance is confined to selected Muslim country shores.

Venture capital is an extremely important asset class for building a knowledge based economy, and a number of Muslim countries have recognized the need to diversify their economies from commodity reliance. However, there is variance between recognizing a need (easy) and the will to something about it (difficult).

It is here Indian Muslims, diasporas and residing locals, can actually do something about it. For example, Vinod Khosla is probably the most prominent Indian venture capitalist diaspora to come back and set up shop in the country, hence, a model exists.

A VC fund, much like a equity fund, are well accepted in India by investors and regulators, and, now, Muslims, outside of India and inside, need to take a first step.

I’m willing to put my money where my mouth it, hence, willing to start/contribute to an Islamic VC fund in India for India, over to you Mr. Yusuf Hamied, Azim Premji, A.R. Rehman, The Bollywood Khans (Aamir, Salman, Shah Rukh, Saif Ali, etc), Sania Mirza, Irfan & Yusuf Pathan, and others, including, obviously our non-Muslim brethren. Mr/Ms Public figures participation, an insignificant amount of your wealth, would jump start others to provide funding for the largest seeded Islamic VC fund in the world.


Islamic micro-financing, probably as common as Islamic venture capital, would appear to be aligned to the needs of the average Indian (Muslim). However, some of the recent developments with micro-finance in India have not left the best impression with recipients and regulators.
I have said elsewhere, micro-finance still creates a creditor-debtor relationship, while better than the ‘friendly loan shark rates,’ interest rates often becomes usurious.  We should look at Mirco-funding, as an equity approach aligns the interests of the parties and prevents the debt (if not death) trap.

The amounts to be disbursed would be the same, and the areas for funding will be Shariah compliant, as micro-finance doesn’t typically involve financing the ‘sin’ sector. The funding would be for Muslim and non-Muslims, as Islamic finance is ‘user agnostic,’ hence, building the hoped for bridges and eradicating ignorance.

Obviously, vetting and monitoring costs are higher, but it should result in more focused investments. An interesting take-away may be some businesses will not get funded, as some of these businesses may be the cause of the commonly heard suicides. Finally, the successful businesses become clients requiring (Islamic) corporate or ‘equity’ banking.


As there are more Muslims in India than almost all the Muslim countries, ex Indonesia, where Islamic finance exists, why are the advocates not lobbying the OIC (Organization of Islamic Countries) to become a member? May be its politically sensitive internally, but Nigeria became an OIC member, hence, access to IDB (Islamic Development Bank) funding.

The IDB funds projects in non-Muslim countries that would benefit Muslim established minority, 180 million! For example, The IDB is a shareholder of the only Islamic bank in Sri Lanka, Amana Bank!

May be its an OIC member country that has rejected the application for India to join, but why? If Islamic finance is for all of mankind, then why should a Muslim country reject India’s inclusion?


Today’s efforts by advocates of Islamic finance in India are well meaning, however, more needs to be done.   The vast majority of Indian (local) Muslims are neither bankable nor interested in compliant equity investments as they are financially disenfranchised. Multinational banks with Islamic windows are not lobbying for Islamic banking in India. However, the law of necessity cannot continue to be the norm for Muslims in India.

The path of least resistance may not bring the dramatic victory, but it will win many small battles and slowly win ‘hearts and minds’ culminating in a deposit taking Participation Bank in India. The UK Islamic finance model of small consistent victories over years resulted in regulators approving one retail Islamic bank and four wholesale Islamic banks. 

The lay of the Indian landscape has the halal food industry, faith based tourism places, and venture capital, hence, a good beginning for bundling and positioning. If ethical finance can truly provide a ‘partnership (not debt/creditor) relationship,’ at the grassroots level for all Indians, then we may have the beginnings of economic justice and ensuing human dignity in the field rather than on academic’s chalk board or (modern version) power point.

Finally, the connection to the Organization of Islamic Countries (OIC) may open the wallet of the Islamic Development Bank (IDB) for infrastructure projects.

Today, a ‘no’ to Islamic finance in India really means ‘yes, to eventual Participation Banking,’ but it’s preconditioned upon small victories over time. Thus, a new approach to approach the same dawn!

Therefore, Chief Minister Chandy, please lets move forward intelligently, methodically and with grace.

Kind Personal Regards

Rushdi Siddiqui

[Rushdi Siddiqui is Global Head of Islamic finance for Thomson Reuters based in New York. He can be contacted at rushdi.siddiqui@thomsonreuters.com]

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Posted by Indian Muslim Observer on February 07, 2012. Filed under , , , , , , . You can follow any responses to this entry through the RSS 2.0. Feel free to leave a response

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