Economic historians argue that the term “Islamic Economics” was used first time in colonial India when Ulema were playing an active role in the country’s independence struggle. The period 1930 onwards is characterized by writings on Islamic economics and banking.

Early Writings:

• Islam Ka Iqtisadi Nizam (Economic System of Islam) 1938; by Maulana Hifzur-Rahman Seoharvi is the first book on the subject in any language.

• Anjuman Qard Hai Bila Sood, (Interest-Free Loan Society) article in ‘Maarif’, 1944 by Hamidullah Siddiqui, gives the account of first practical effort; his several other writings, A Suggestion For an Interest-Free Islamic Monetary Fund (1955), and Interest-Free Lending Banks (1962) are other important contribution on the subject.

• Islam and the Theory of Interest (1946); by Anwar Iqbal Qureshi is the first book on the subject in the English language.

• Islami Maashiat(Islamic Economics) in 1947 by Syed Manazir Ahsan Geelani.

• An Outline of Interest less Banking (1955) by Mohammad Uzair has the distinction of being the first published work exclusively devoted to the subject of Islamic banking.

• A Model of Interest-Free Banking(Banking Without Interest, 1969) by M.N. Siddiqi is considered one of the pioneering book on the subject.

Early Practical Efforts:

• Anjuman Imdad-e-Bahmi Qardh Bila Sud was established in 1923 2 by the employees of the Department of Land Development. During the period of Aasafia Government, 12 such organizations were established, few of them continued till the partition of the country in 1947.

• Patni Co-operative Credit Society, Gujarat was established in 1939.

• In 1940, Muslim Fund Tanda Baoli, Rampur was established. However, the partition of India adversely affected the functioning and further establishment of such societies for fairly a long period.

Above listed writings and some practical efforts encouraged social workers, economists and technocrats to take up Islamic economics and finance as a passion for life. However, the partition of India and the subsequent migration of a substantial segment of the well-off and educated section of the community across the border altered the course and journey of Islamic finance in India.

Islamic Finance in Independent India
Many small efforts initiated during the pre-independence period succumbed during the tumultuous period of the country’s partition. After a gap of around 15 years, fresh efforts started gaining momentum. Muslim Fund Deoband was established in 1961, which is still working. Today, there are more than a hundred Muslim Funds in a country of different size and nature. The largest among them Muslim Fund Najibabad (MFN) was started in 1971. Today it has more than 40 branches across various cities. Over time, most of these Muslims Funds have unfortunately given up on shariah compliance and started focusing more on saving the community from loan sharks. 3 Today, their organizational structure has become obsolete and there is little desire for shariah compliance and innovation left in the management and employees.

Bait-Un-Nasr in Bombay (now Mumbai) was started as a pilot in 1973 and regularized as an Urban Cooperative Credit Society in 1976. 4 It collected savings from its members without offering any return to them and gave loans to members. The cost of running the operations was spread among the borrowers. This model is replicated all over the country with great interest from several social and religious organization. Some of the organizations have started experimenting with some Islamic finance structures like Murabaha. During the last few years, Bait-Un-Nasr has ventured into a profit-sharing financing model.

By mid of 1980s Islamic Non-Banking Finance Companies (NBFCs) had started to emerge on the horizon. These NBFCs mobilized capital from investors in various formats and deployed them mostly in real estate and shares of listed companies. Profit earned from investments were shared with the depositors. The economic downturn and drastic changes in the NBFC regulations, including a ban on accepting public deposits in the late 1990s cut short the journey of most Islamic finance companies in the country.

The closure of the NBFC route led some enthusiasts to move towards the Indian capital market. This was a more viable option under the extant regulations. For some years the Islamic stockbroking model did well as stockbroking commissions during those days were as high as 100 to 200 basis points. For investors too, this was a better arrangement in terms of liquidity and relatively better control over one’s investment as compared to investing with an Islamic finance NBFC.

In 2005, the Reserve Bank of India appointed a Committee to study Islamic Banking products and its feasibility under Indian banking regulation. The Report concluded; Islamic Banking is not possible without changes in the banking regulations. In 2008, some finance professional joined hands to launch a professional shariah advisory firm, which encouraged many Indian corporates to venture into shariah-compliant business.

In 2009, Taurus Ethical Fund was launched as India’s first exclusively Shariah Compliant Mutual Fund approved by the Indian capital market regulator SEBI. This encouraged Tata Asset Management to convert their hitherto quasi shariah-compliant scheme into fully shariah- compliant. In the same year, SEBI also permitted India’s first Shariah Compliant Venture Capital fund.

In 2009, the government of the state of Kerala initiated the idea of promoting an Islamic finance company mainly to mobilized savings of emigrants working in the Middle East. This was the first time a state-owned entity showed interest in the Islamic finance business. Soon a case was filed against the company on the premise that an entity created through taxpayers’ money cannot offer Islamic finance products as it would violate the Indian state’s commitment to secularism; create a parallel regulatory structure controlled by shariah scholars; follow Islamic prohibitions instead of those by the state of India. After two years of struggle, all the pleas were rejected by the High Court of Kerala, paving the way for the first state-owned Islamic finance company in India. The company is working today although with much less enthusiasm.

The year 2009 also saw a Central government-owned entity showing interest in Islamic Reinsurance. The company had substantial businesses coming from insurance companies based out of the Middle East and the Far East. With the emergence of Takaful companies in the region, ReTakaful businesses started to be underwritten by multinational Reinsurers like Munich Re, Hannover Re and Swiss Re. The government of India owned GICRe decided to compete with these companies by venturing into Shariah-compliant reinsurance. The company is still in the business and has done well over the years. 2010 was mainly in the news for the launch of India’s first Shariah Index jointly produced by BSE and TASIS.

In 2011, RBI cancelled the license of India’s only Islamic Finance NBFC in the private sector. Interestingly, the company was blamed for not charging interest and not reporting it to RBI. In 2013, some finance professionals got together to promote Rehbar finance service using fintech as a model for financial intermediation. Over the years Rehbar has evolved from a mere P2P organization to an asset management company using innovative financial instruments like convertible debentures. It has managed to finance over a 1000 business for nearly USD 1 million.

In the meanwhile, India’s largest public sector bank State Bank of India was working to launch SBI Shariah Equity Fund through its Asset Management arm but the launch was deferred in 2014 after some high-profile intervention. 6 In 2015, an RBI Committee, among others, also recommended the introduction of certain identified Islamic finance products by publicly-owned banks. 7 The idea was shelved political brouhaha surrounding the announcement.

Summing Up
Today, India is the only major economy globally that has not permitted Islamic banking. However, the Indian capital market regular SEBI has permitted a couple of Mutual Funds and Venture Capital Fund schemes. Besides, there are shariah indices created by both the major stock exchanges in the country. The Indian state of Kerala has an Islamic Finance NBFC and a Central government-owned entity is involved in offering Retakaful facilities. However, there is no Takaful or shariah-compliant insurance product offered by any entity in India for the public. At the community level, Muslims are experimenting with certain Islamic finance products through cooperatives and some technology platforms like Rehbar. A pilot of health takaful based on the concept of mutuality is taking place through a public trust in Mumbai.