Communal cauldron

Slowly and cynically our politicians have started laying the groundwork for the next communal buildup. First, we had the Sachar report, which has now become the basis for the Muslim community’s claim to victimhood. Next, we have had state governments using quotas to woo the Muslim voter. On the same day on which the Andhra Pradesh high court struck down the state government’s orders on Muslim quotas, the West Bengal
government rushed in to announce 10 per cent job reservations.

Meanwhile, Muslim leaders have begun the spadework to tell us that we need an Islamic bank to serve their needs. No poor Muslim in Bangladesh has accused Grameen Bank founder Mohammed Yunus of being a kafir for lending with interest. But in secular India we need Islamic banking or else Muslims will rot in poverty. Secular humbugs will support this view on the plea that banking must be “inclusive” when the reluctance of some Muslims to use banks is a case of self-exclusion, not discrimination.

Islamic banking is a marketing tool, nothing more. When a bank says it is selling Islamic financial products, it is essentially marketing services to the religious-minded. But this does not make its products significantly different from those offered by non-Islamic banks.

Banks usually do one of two things: they can borrow and lend by giving or taking interest, or they can raise capital (short-term or long-term) and ask investors to share in their gains or losses. Most banks do both; Islamic banks claim to do only the latter, in line with the Koranic ban on interest.

This is largely fiction because people come to banks for safety of capital and steady returns. They don’t go there to take risks, where returns depend on whether their money makes a profit or loss. If they want to do the latter, they can invest in venture capital funds, shares, mutual funds, or even directly in small-time businesses.
The issue is not whether there can be an entity called an Islamic bank — there can be —  but in a world where interest-based banking is the norm, no bank can be truly be Islamic. Ask yourself: how will an Islamic bank get deposits (or investment funds) when there is an alternative? Let’s say State Bank offers 7 per cent on fixed deposits. Even if an Islamic bank offers no guaranteed return, it has to find ways to match the returns of State Bank to attract substantial funds. If it does so consistently, it cannot be truly Islamic, since returns in business are variable. If it doesn’t, it will attract only those who can take risks — which means the rich. The poor can’t afford to take risks — even if they happen to be good Muslims. The conclusion: even though they don’t pay interest, Islamic banks try to mirror interest rates in some way or the other.

Moreover, you can have interest-free banking even now. Banks can invest in zero-coupon bonds, short-term treasury bills and corporate bills — all of which are based on implied interest rates, but don’t actually pay interest. Any bank can offer you a portfolio account where your money is invested in non-interest-bearing securities. You can call it an Islamic account if you like.

On the lending side, you can meet the Koranic norm by specifying
your return instead of calling it interest. How do you think Yunus and various microfinance institutions lend to the poor? They don’t say we will charge you 30 per cent interest. Rather, they will say here’s Rs1,000 to buy dress material. When you manage to sell the stitched garments you can return us Rs1,075 — say in three months. When annualised, this is 30 per cent interest. For the poor, it’s an enabling funding option. Simply put, a pre-indicated capital return becomes interest only if you stop to calculate it!
If you are borrower — and want to buy a home — you can avoid paying interest if you enter into a hire-purchase deal. The Reserve Bank should encourage this form of housing finance by enabling more banks and non-banks to do this. 

Those who talk of Islamic banking are essentially seeking to give Muslims another way to separate themselves from the mainstream. They are not well-wishers of Muslims. 

The same applies to quotas. Nobody is saying that Muslims don’t need jobs, education and other support systems to develop. But what is the need to help them as Muslims? When below-poverty-line (BPL) families can be helped without communal identification and NREGA benefits can be given on socio-economic grounds, Muslims can be helped the same way.

It’s obvious why our politicians love quotas. When you give benefits on the basis of caste or religion, it is useful for political mobilisation. If you do it through socio-economic filters, there are no quick political payoffs. Quotas, Islamic banking, and Sachar-induced victimhood are all one of a piece: they promote communal identity at the cost of true development.