Financial Inclusion of Muslim Minority through Interest-Free Banking in India

Abstract

The issue of financial exclusion is of course a matter of concern for the nation. Exclusion of the poor from the financial system is a major factor contributing to their inability to participate in the development and growth process. It holds back its victims from progress and development by imprisoning them in a vicious cycle of social deprivation and poverty. The fact that it is closely interconnected with level of education, unemployment, health, family breakdown and exploitation from illegal and predatory lenders has been highly documented. Even after 40 years, since nationalisation of banks, ∼60 per cent population do not have access to formal banking and only 5.2 per cent of villages have bank branches. Financial exclusion of a large segment of the population has far-reaching implications for socioeconomic and educational upliftment of the masses. If finance is available without the burden caused by pre-determined interest rates, it will be a welcome development for the marginalised. Interest-free Islamic banking, interest-free micro-finance, can fill this gap.

The ‘Sachar Committee Report’ revealed the nature and degree of Muslim backwardness. For Indian Muslims, already suffering from severe economic backwardness, financial exclusions have been proved to be an act of economic assassination of Muslims by the so-called secular democratic system. The percentage of households availing themselves of banking facilities is much lower in towns and villages where the Muslim population is high. This exclusion may not be good for our economic growth targets. The financially excluded section reflects poverty and subdues the inclusive growth target. Interest-free banking would have played a vital role for financial inclusion for inclusive growth of the marginalised section of the society in India by offering a set of new contractual possibilities that may bring hitherto excluded citizens into the formal financial system, which would ensure social justice and huge opportunities for future development of the Indian economy.