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Demonetisation and Indian Muslims: An opportunity to enhance financial literacy

By Shafeeq Rahman

Demonetization, in spite of all criticism and inconvenience, has been enacted and people are forced to stand in long and serpentine queues in front of banks to deposit the money they have kept in Rs 500 and Rs1000 notes and for withdrawing the cash. Muslims like any other community are badly affected by it. Ro be true, they are struggling more for the replacement of their currencies due to their low penetration in banking.

According to 2013 estimates, 63% Muslim have bank accounts and 9% have the post office saving account, whereas the national average was 78% for banking account and 14% for post office account. Poverty is also another reason of such misery as majority of Indian Muslim belong to low income groups, 63% population earn less than 1.20 Lakhs rupees while only 6% earn above 3.00 lakhs rupees i.e. near to the taxable mark.


Demonetization has badly affected this low earning group who is hardly associated with the mainstream banking system. Currency crisis caused the death of around 12 Muslim out of the total 55 deaths in the month of November due to heart attack or by committing suicides. Muslim businesses were also affected by such exercise as they are involved in self-employed small scale business which is largely confined to unorganized sector without proper accounting and auditing.

Since informal small business in India mainly relies on cash transaction for conducting business, this segment is largely affected with the currency crisis in sustaining their business.

Muslim economically lag behind because of low participation in banking and financial institutions. Interest based transaction in mainstream banking is the main reason for low banking participation of Muslim who consider the interest against the Islamic economic principles. RBI is planning to start interest free banking window in scheduled commercial banks so that Muslim can also actively associate themselves with banking system.

One of the objectives behind demonetization is to discourage the cash holding pattern by linking all activities with bank accounts. Until the interest free provision, Muslim need to take this opportunity to actively participate in banking sector. They can have the transaction by deposit and withdrawal of actual amount in mainstream commercial banks and can spend the interest amount for philanthropic purposes. Government also intends to encourage the cashless transaction with digital wallets and by use of plastic money. Trend is shifting from mere banking participation to the digital transactions. Without any negativity, Indian Muslim needs to assess their readiness in adoption of next trend of digital transaction.

There is no denying that it is rather difficult to survive in modern economies without the financial literacy as Muslims lag behind in general literacy. Overall literacy rate in India was 73% but it was 69% among the Muslim according to 2011 census. Similar is the ratio of Graduate and above education attainment population, national average was 5.14% while it was 2.47% among Muslim in the year 2011. Literacy trend among Muslim in future also does not seem to rosy as drop out in school education is common due to financial constraints and engagement in economic activities. During the year 2014-15, Muslim share in total enrollment was 14.53% at primary (I-V Classes), 12.61% at upper primary (VI-VIII classes), 10.28% at secondary (IX-X classes), 8.08% at senior secondary (XI-XII) and 4.48% at higher education (Above 12th class). With such literacy and enrollment ratio, Muslims face difficulties in accessing digital banking by their own in coming years.

Indian Muslim, in spite of all criticism, are forced to open the account in mainstream banking after linking the subsidy amount for direct cash transfer scheme into beneficiaries account. Increasing compulsion of banking account in government schemes have actually improved the linking of Indian Muslim to mainstream banking which is against their traditional approach of total prohibition in joining banks. Similar would be the environment for digital banking in coming years. Muslim have to be prepared for financial literacy in its adoption so that they can also be economically advanced along with other fellow religious group.

(Shafeeq Rahman is a Delhi based researcher. He can be contacted at

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