Mumbai: The Reserve Bank of India (RBI) has proposed opening of ‘Islamic window’ in conventional banks for ‘gradual’ introduction of Sharia-compliant or interest-free banking in the country. Both the Centre and RBI are exploring the possibility of introduction of Islamic banking for long to ensure financial inclusion of those sections of the society that remain excluded due to religious reasons.
“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.
“Introduction of full-fledged Islamic banking with profit-loss sharing complex products may be considered at a later stage on the basis of experience gained in course of time,” the RBI has told Finance Ministry in a letter, a copy of which was received in response to an RTI query.
Islamic or Sharia banking is a finance system based on the principles of not charging interest, which is prohibited under Islam.
“It is also our understanding that interest-free banking for financial inclusion will require a proper process of the product being certified as Sharia compliant will be required both on the asset and liability side and the funds received under the interest-free banking could not be mingled with other funds and therefore, this banking will have to be conducted under a separate window,” it said.
In its annual report for 2015-16, the central bank had said that some sections of Indian society have remained financially excluded for religious reasons that preclude them from using banking products with an element of interest.
“Towards mainstreaming these excluded sections, it is proposed to explore the modalities of introducing interest- free banking products in the country in consultation with the government,” it had said.
The plan for Sharia bank was opposed by certain political and non-political groups.
The committee had said, “Certain faiths prohibit the use of financial instruments that pay interest. The non- availability of interest-free banking products results in some Indians, including those in the economically disadvantaged strata of society, not being able to access banking products and services due to reasons of faith.”
“This non-availability also denies the country access to substantial sources of savings from other countries in the region,” the panel had said.