The Reserve Bank of India (RBI) has proposed to open “Islamic window” in Indian banks to gradually include the Sharia-compliant interest-free banking in the country. The central government and the RBI are exploring the possibility for quite some time now aiming to include those — primarily Muslims — who for religious reasons have so far opted to stay out the country’s banking system.
According to the Organization of Islamic Conference (OIC), Islamic banking is a financial institution whose statutes, rules and procedures expressly state its commitment to the Principles of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations. Islamic or Sharia banking operates on the basis of not charging interest, which is prohibited under Islam.
The central bank, in a letter to the finance ministry, has said: “In our considered opinion, given the complexities of Islamic finance and various regulatory and supervisory challenges involved in the matter and also due to the fact that Indian banks have no experience in this field, Islamic banking may be introduced in India in a gradual manner.
“Initially, a few simple products which are similar to conventional banking products may be considered for introduction through Islamic window of the conventional banks after necessary notification by the government,” Press Trust of India reported.
Additionally, it also said that the introduction of full-fledged Islamic banking having profit-loss sharing complex products may be considered during a later stage. The RBI’s proposal is on the basis of examining the legal, technical and regulatory issues regarding the possibility of introducing Islamic banking in India.
“In case it is decided to introduce Islamic banking product in India as suggested, RBI would require to undertake further work to put in place the operational and regulatory framework to facilitate the introduction of such products by banks in India,” the letter (cited by the PTI) said.