Financial Inclusion of Muslims: Major Roadblocks


By Syed Zahid Ahmad,

indian muslims

Government has not cared to read out and counter the real constraints in the way of financial inclusion of Muslims. The regulatory frameworks have been designed in such a manner that unofficially Muslims have been denied to avail banking and financial services unless they breach Islamic law, says Syed Zahid Ahmad, eminent economic analyst and columnist. Mr. Ahmad met Minority Affairs Minister Mr. K. Rehman Khan yesterday (28th March) to discuss various aspects related to the issue. Below were the points of discussion in the meeting — Editor


1. Negative Effort by the Government to counter financial exclusion among Muslims

Government has not cared to read out and counter the real constraints in the way of financial inclusion of Muslims. The regulatory frameworks have been designed in such a manner that unofficially Muslims have been denied to avail banking and financial services unless they breach Islamic law. The conflict of Islamic law with banking law led higher financial exclusion among Muslims because majority of Muslims stick with Islamic law.

There has been negative effort by the Government to address the financial exclusion among Muslims. Though Sachar Committee neglected community’s inputs (during interaction with community to know the real problems) that separate banking system is needed for the community; and made recommendation to increase bank branches in Muslim concentrated areas. Such recommendations increased supply of interest bearing banking services among Muslims. The promotion of banking system against Islamic law among Muslims has only increased incidences on fraud, corruption and cheating practices in Muslim areas. Such incidences forced the banks to declare Muslim concentrated areas as red zone with high default rates thus not suitable for credit disbursement. Similar efforts were made by Micro Finance institutions to lend interest bearing loans to Muslim women SHGs. Studies suggests that participation of Muslims in SHGs and micro finance have been poor.

Those Muslims who do not fear God to breach Islamic law to avail finance don’t need to think twice before prowling with corrupt practice to cheat the bankers and financiers lending on interest. Such practices not only encourage corrupt minded Muslims to cheat the bankers; but also led to mark Muslim populated areas as negative or red zone for financial inclusion.

Example is Mewat where NABARD increased flow of interest bearing credit among Muslim farmers and today the banks in Mewat are not maintain even 10%  on time real recovery rate for loans. In a meeting with people in Mewat district of Haryana, it came to know that interest bearing loan being anti Islamic can be treated as bounties (won in war of truth and false) for Muslims. They have view that since the system is not governed by Islamic law; we should not take as maximum advantages of the system by hook or crook. However they have been found loyal to return interest free loans taken from their relatives.

So the Government really need to review it’s about approach for financial inclusion of Muslims. Financial inventions are required to ensure financial inclusion among Muslims.

2. Disappointment among community stakeholders about Government reaction on pleas submitted in writing and discussions held thereafter.

The application submitted into the Ministry of Finance for constituting a working group to study and address financial exclusion among Muslims have been no response till date. Date of submission application is 24. 11. 2012. Meeting with the Secretary – Financial Services held on 11. 1. 2013. Written plea submitted to Secretary DFS on 11.1.2013. After retirement of Shri Mittal the issue is pending. Mr. Umesh of Financial Inclusion dept is not responding.

3. Scope of Mutual Risk Subscription Funds in India to provide low cost insurance.

To replicate the concept of Takaful in India it is advisable to launch system of Mutual Risk Subscription Fund to provide low cost non life insurance to poor people in general and draw special attention of Muslims.

4. Failure of specialized financial institutions like SIDBI and NABARD etc. to extend financial resources for development among Muslim community.

Sachar Committee Report suggests that the share of Muslims in credit disbursed through SIDBI is 0.48% whereas it is 4% from refinance done by NABARD.

5. Poor presence of Muslims in the Reserve Bank of India, Ministry of Finance and the Planning Commission of India.

Indian Muslims (with 13.47% share in national population) just share have just 0.78% and 2.2% share in employment with RBI and SCBs.

6. Scope of inviting community based financial institutions, cooperative societies and NGOs to promote financial services for Restructuring of NMDFC.

To extend reach of NMDFC, it is advisable to invite community based Financial institutions, cooperative credit societies and NGOs as they are closer to the community and can serve better way to serve the minorities.

7. How RBI can introduce interest free banking without amendment in any act.

Section 17 (1) authorizes RBI to accept deposits without interest; and section 45 allows RBI to appoint any bank as its agent to execute the work.

Section 6 (1) (b) allows SCBs to work as an agent; section 6 (1) (m) allows banks to acquire and undertake the whole or any part of the business of any person or company, when such business is of a nature enumerated or described in this sub- section; and section 6 (1) (o) carries the provision to include new sort of business for banking companies.

Section 19 of BR Act 1949 allows SCBs to open subsidiaries for specific business activities.

So RBI on behalf of Government of India and the public can appoint any SCB as its agent to execute Participatory Banking. That Bank may further open Special Windows at branch levels; or open subsidiaries to transact Participatory Banking.

The Central Government may, by notification in the Official Gazette, specify business of Participatory banking as lawful for a banking company.

Thus Indian banks with support of RBI can open windows of Participatory banking in India. The Participatory Banking may be defined as below –

“Participatory Banking is a process wherein the customer and the banker instead of earning interest on deposits or lending; actually participates in tangible assets by sharing equity shares or subscribes the associated financial risks involved in any business activities. “

8. Government’s time bound economic resurgence policy for the poorest section of society.

Since after revelation of Muslims economic plight published in the Sachar Committee report, there have been expectations from the Government that there would be sound economic resurgence policy stand for Muslims. But so far nothing has been done in this regard expect increase in Annual Budget for Ministry of Minority Affairs.

The finance plays the back bone of any economy. It has been repeatedly said  the share of Minorities in credit disbursement by SCBs has increased, but there is no report to state that Muslims share in credit disbursed to minorities has justifiably true. The Sachar committee has pointed that share of Muslims in credit disbursed to Minorities is adequately lower than their share in minorities population. If we analyze the pattern of credit disbursement at district levels by our SCBs; we can observe that flow of credit has been considerably higher in areas where Sikh and Christian communities live in, compared to Muslim concentrated area where flow of credit is considerably lower.

It thus indicates that still after increase of minority’s share in PSAs disbursed by SCBs, the majority of PSAs has been drawn by Sikh and Christian communities leaving Muslims with almost no finance for economic growth.

Thus there is need to appoint any working group to study the hurdles in financial inclusion of Muslims, challenges for economic growth and suggest remedial measures to enable the Government prepare a time bound economic resurgence policy for Indian Muslims. This would help India achieve inclusive growth and reduce national poverty.

9. What we expect from Ministry of Finance to do for welfare of Minorities in general and Muslims in particular. 

We expect that Ministry of Minority Affairs should –

  • Facilitate Community based NGOs, Cooperative Societies and Financial institutions through providing matching grants like pattern of Canadian Government.
  • Ministry should listen and take up appeals for pursuance with inter ministry task force if any issue related to minorities is not being listened properly by any ministry.
  • Under Ministry of Minority Affairs there should be a committee to periodically evaluate the working performance of various ministries with regard to facilitate the Minorities.
  • Ministry of Minority Affair should constitute a working group to ensure that participation of Minorities be there in any public body, committee constituted under any ministry so that Muslims should feel equal opportunity to grow in India.
  • Ministry should constitute its own committee to prepare, present and manage annual budgetary resources so that Minorities could avail more share in national and state level union budgets.
  • There should be a blog for Ministry of Minority Affairs where minority stakeholders can find a platform to share their views, submit feedbacks on draft plans and report. This would help generate human resources for execution of plans under Ministry of Minority Affairs.


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