The Reserve Bank of India (RBI) has decided not to pursue a proposal to introduce Islamic banking in India. Decision in this regard was taken after considering wider and equal opportunities available to all citizens to access banking and financial services.
Islamic banking is banking or banking activity that is consistent with the principles of sharia and its practical application through the development of Islamic economics. Sharia prohibits the fixed or floating payment or acceptance of specific interest of fee for loan of money. It is different from regular banking in that it prohibits earning of interest (or riba) through the business of lending.
The proposal to introduce Islamic banking was first made in 2008 by a committee on financial sector reforms chaired by former RBI Governor Raghuram Rajan. The committee had recommended that interest-free banking techniques should be operated on larger scale to give access to those who are unable to access banking services, including those belong to economically disadvantaged section of society.
The 2015 World Bank report estimates Sharia-compliant financial assets to be in range of US 2 trillion dollars, covering bank and non-bank financial institutions, capital markets, money markets and insurance. The Islamic Finance Industry is expanding at rate of 10%-12% annually.