INDIAPOSITIVE
ELITE MEMBER
- Joined
- Sep 20, 2014
- Messages
- 9,318
- Reaction score
- -28
- Country
- Location
ISLAMIC BANKING MAY LAUNCH IN INDIA VON | September 5, 2016 | Economy | No Comments Islamic banking- aboutus - about al masraf islamic banking shutterstock_181863338 RBI policy shift paves the way for it The Reserve Bank of India (RBI) has recently proposed working with the government to introduce interest-free banking to tackle financial exclusion for religious reasons. This will potentially open Islamic finance to the largest minority population in the country. Urjit Patel, who assumed charge as RBI Governor on September 4, and is considered a close ally of outgoing Governor RaghuramRajan,
had earlier indicated he plans to continue ongoing policies. The annual report of the central bank released recently argues that it would explore introducing interest-free banking products in consultation with the government, opening prospects of supportive legislation. This is considered a major shiftin RBI policy. Earlier, it agreed to offer Islamic banking products through non-bank channels such as investment funds or cooperatives. The proposal, if implemented, could make banks accessible tomore members of India’s180-million Muslim community. Bengaluru-based Islamic banking specialist Saif Ahmed has said that the RBI’s latest move is a significant development.
He says that parallel legislation or amendment is required to be passed by parliament which cannot be achieved without active support of the incumbent government. In January this year, an RBI committee on “Medium Term Path for Financial Inclusion”, headed by Deepak Mohanty, recommended “interest-free windows” in existing conventional banks. The Mohanty report says: “One area that has not been adequately addressed is the role of interest-free banking in financial inclusion. Globally, interest-free banking, also known as Islamic banking, has witnessed a significant increase, especially in the wake of the financial crisis[2008].” The report cites a survey saying “the evidence suggests that Muslims are less inclined to access formal finance, in general, although they might be accessing long-term formal finance.”
The government, while indicating its keenness for implementing Islamic banking, advised the RBI to clarify the legal, technical and regulatory issues. It was followed by formation of an inter-departmental group on alternative or Islamic banking within the central bank. According to its report, the central concept of interest-free banking and finance is justice which is achieved through sharing of risk. Stakeholders are supposed to share profits and losses and charging of interest is prohibited. Islamic banking has four important features—Riba, Haram/Halal, Ghararar/Maysir and Zakat. Riba is the most important aspect of interest-free banking, and means prohibition of interest. Haram/Halal is a strict code of “ethical investments” for interest-free financial activities. Such investment gives priority to the production of essential goods which satisfy the needs of the population such as food, clothing, shelter, health and education. Under Ghrarar/Maysir, gambling in all forms is prohibited.
Zakat is an instrument for the redistribution of wealth in the form of a compulsory levy. Another feature condemned under interest-free banking is economic transactions involving elements of speculation. In 2008, the Rajan-led committee on financial sector reforms talked about the need for a closer look at the issue. He said that interest-free banking has witnessed a lukewarm response in India and now it was time for change. The New Delhi-based Indian Centre for Islamic Finance (ICIF) welcomed the RBI committee’s recommendations on interest-free windows in existing banks. Its general secretary,AbdurRaqeeb, said it will give a boost to Prime Minister NarendraModi’sPradhanMantri Jan DhanYojana. “For the first time, the RBI has come out with a concrete document on Islamic banking. I hope the government will implement the Mohanty Committee’s recommendations at the earliest,” he said. While talking to a UAE-based newspaper, The National, Raqeeb said,“India needs investment from outside, and there are many Islamic countries that are willing to invest here but they would like a Sharia-compliant way to do it
Raqeeb also rejected the notion that Sharia-compliant banking only serves to promote Islam and help Muslims. The RBI has been considering Islamic banking’s entry in India for nearly a decade now. In 2007, a working group appointed by the central bank recommended that India not permit Islamic banks to operate in the country. But arguments for instituting Islamic banks were revived in 2012, when the state-appointed National Minorities Commission lobbied for it in the finance ministry. It would be worth mentioning that during Prime Minister NarendraModi’s visit to Saudi Arabia in April this year, the Indian delegation signed an extensive agreement with the Islamic Development Bank (IDB) to establish a branch in Ahmedabad and,subsequently,in other parts of the country. It was also agreed that India’s state-owned Exim Bank would extend a US$100 million line of credit to facilitate exports to IDB member countries. In addition, the IDB pledged $55m to provide medical treatment to India’s rural poor.
The first 30 of 350 medical vans, donated by the IDB as a social initiative, will be rolled out in Gujarat later this year. UAE-based newspapers have observed that though India is not typically seen as being part of the “Islamic world”, its 180 million-strong Muslim population makes it an attractive place for the IDB to set up shop. Like other Islamic banks, the IDB does not charge interest on loans or pay interest on deposits. It also follows a code of ethical financing, refraining from investing in industries that are considered harmful in Islam. These include businesses involving liquor, pornography or gambling. According to the London-based Sunday Guardian report published in January this year, the total Islamic financial assets were estimated at around $2 trillion in 2015, practically a 10-fold increase from a decade ago and outperforming the growth of “conventional finances” in many countries.
http://viewsonnewsonline.com/islamic-banking-may-launch-india/
