New Delhi, November 20, 2016: The Reserve Bank of India (RBI) has proposed the introduction of “Islamic window” in the conventional banks for “gradual” start of Sharia-compliant or interest-free banking in the country.
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Both the RBI and Centre are looking for the possibility of the introduction of Islamic banking so as to ensure the financial inclusion of those sections of the society that remain not a part due to mere religious reasons.
Islamic or Sharia banking is a finance system based on the principles of not charging interest, which is prohibited under Islam.
“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, according to PTI report.
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“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.
The central bank’s proposal is based on the examination of legal, regulatory and technical issues regarding the feasibility of introducing the Islamic banking in India on the recommendation of the Inter Departmental Group (IDG).
RBI has also assembled a technical analysis report which has been sent to the Finance Ministry.
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“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 introduction of such products by banks in India,” the letter said.
by NewsGram team with PTI inputs