Islamic Banking

After discussing the different principles of Islamic banking, this is an attempt to explore the feasibility of Sharia banking in India. The rise of “interest” as a blood sapping social evil is alarming. To get rid of this menace and save the nation from the clutches of interest, suitable amendments should be made in the Banking Act. Indira Gandhi’s slogan, “Garibi Hatao” and “Roti,Kapda Aur Makaan” as enunciated by Zulfikar Ali Bhutto are still relevant today as it was in the early seventies. Yet even today, horrendous disparities exist between different segments of the Indian society. The majority of the unorganized sector; workers, semi-skilled persons, small farmers are all non-bankable. .Access to finance by the poor and the vulnerable groups is a prerequisite for poverty reduction and social cohesion. Such “financial apartheid" is one of the main causes of exclusion of the majority of the population in terms of growth. Government must provide the disadvantaged classes with the tools they need to improve their condition.The Indian banking sector has opened up considerably in the past decade or so and openness to interest-free banks is a logical next step. Islamic banking is one way to ameliorate the disadvantaged classes. The potential benefits of allowing Islamic banking include; decreased economic disparity between the haves and the have nots, better integration, and consequently accelerated economic growth. Government of India can leap a step closer towards the fulfillment of Indira Gandhi’s much cherished dream of “Garibi Hatao” by reforming its banking sector and allowing the establishment of Islamic Banks.

Crisis revisted

“Irrational exurbence” was the phrase used by the former Fed Chairman Alan Greenspan to define the boom in 1990s. Today this phrase once again, exactly describes the current situation.
The classic explanation of financial crises, going back hundreds of years, is that they are caused by excesses — frequently monetary excesses—which lead to a boom and an inevitable bust. This crisis arose from the unabated housing boom witnessed in USA in the early part of century. It in turn was the outcome of monetary excesses by the Federal Reserve Bank during the Alan Greenpsan’s tenure.

Unfolding of Crisis

The current economic difficulties have a United States origin. The original underlying assets were houses whose prices were falling. The collapse of the securitized US mortgage market and its related derivative products amplified the weakness of the US housing sector, sending a contractionary shock through the US economy and to the rest of the world. Asset backed commercial paper issued by the special purpose vehicles now in trouble brought weakness to the dollar funding market, causing it to freeze up in August 2007. This market provides large US and foreign multinational financial conglomerates with the short-term monies that they need to finance their investments, including those made daily on their trading floors. It has been more or less frozen ever since, with disastrous consequences for the larger financial system. Its complete shutdown in August 2007 crippled the US banking and financial system, causing it to slowly unravel. Matters got worse in September 2008, or rather, matters came to a head. Little new had happened within the core of the financial system itself, for it had already come to a halt, but the general macroeconomy was weakening and pulling asset prices further down. The freeze-up spread from the interbank to the other short-term US money markets, including those controlled by the major money market mutual funds, causing them to freeze up as well. By November 2008, the entire financial system, and not that of just the money markets of the United States or the United Kingdom, became incapable of carrying out even the simplest of steps involved in the conversion of corporate savings into investment or the financing of home building, personal consumption, or development.

Initially the “Decoupling Theory” was cited for the apparent survival of the emerging economies (especially BRIC countries) from the crisis. This immunity did not last long. The slowdown crept into these economies through the trade route and flight of capital. Soon, countries that had
adopted export-led growth strategies and liberalized their capital accounts (China and East Asian countries to a large extent), found that they were suffering from the effects of a reduction of the aggregate demand of the nations to which they exported. Emerging market and developing countries are now suffering from the same vicious circle that is affecting the developed nations: their weakening economies are interacting with weaknesses in their financial systems.

WTO:Resurfacing the Negotiation Rounds

Amidst mayhem of prevalent global crisis, nations whether developed or developing everyone
has been suffering from slowdown. International trades have been largely impacted. In hurry
many nations across globe took rescue measures to save their individual economies. Some
announced bailout packages and some went protectionism way. Global slowdown has shattered
nations so hard that everyone trying individual way to deal with their crisis. The U.S. is planning
retaliatory tariffs on Italian water and French cheese to punish the EU for restricting imports of
U.S. chicken and beef. India is proposing to increase tariffs on foreign steel at the request of its
steel industry. Egypt has imposed duties on sugar, and the U.S. has levied new tariffs on Chinese
goods it contends are being dumped on the market. If international trade is kept un-regulated, it
may deepen the ill effects of global crisis and the situation may go worst. There has been always
a need of regulator for international trades.
The World Trade Organization (WTO) has been established to supervise and liberalize
international trade. The WTO has 153 members, which represents more than 95% of total world
trade. The WTO is governed by a Ministerial Conference, which meets every two years; a
General Council, which implements the conference's policy decisions and is responsible for dayto- day administration. Dispute settlement is the central pillar of the multilateral trading system, and the WTO’s unique contribution to the stability of the global economy. Without a means of settling disputes, the rules-based system would be less effective because the rules could not be enforced. The WTO’s procedure underscores the rule of law, and it makes the trading system more secure and predictable.
Though WTO had been set up with the aim to control international trade, it has not been able to
get tantamount of success as it was expected from it.WTO has yet to play more strong role in
keeping global trade smooth. Cooperation from nations and consensus have been sought the key
drivers for WTO. Looking at the current global slowdown, although the WTO cannot provide
anything immediate to help solve the current crisis, it can provide medium- and long-term
solutions. A WTO deal could help soften the impact of high prices by tackling the systemic
distortions in the international market for food and commodities.WTO has to revive the
international trades across all the industries and once trade has been stabilized, it would in turn
help nations to come out of grave situation in due course.