Islamic Banking Current Affairs

India not to pursue Islamic banking: RBI

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

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.

Background

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.

Month: Categories: Banking Current Affairs 2018

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RBI proposes Islamic window in conventional banks

The Reserve Bank of India (RBI) has proposed the opening of Islamic window in conventional banks for gradual introduction of Sharia-compliant or interest-free banking in the country.

In this regard, RBI has also prepared a technical analysis report and submitted to the Union Finance Ministry for its consideration.

What is the issue?

  • Islamic or Sharia banking is a finance system based on the principles of not charging interest. The charging of interest is prohibited under Islam.
  • However, in recent times both the Union Government and the RBI have been exploring the possibility of introduction of Islamic banking for a while to ensure financial inclusion of those sections of society that have remain excluded due to religious reasons.

How RBI going to implement it?

Initially, RBI is planning to introduce a few simple products similar to conventional banking products through the Islamic window. But it will be after necessary notification issued by the Union Government. In later stage, full-fledged Islamic banking with profit-loss sharing complex products may be considered on the basis of experience gained in course of time.

What are difficulties in implementing Islamic window in conventional banks?

Indian banks have no experience in the Islamic or Sharia banking. There are also lots of complexities of Islamic finance. There are also various regulatory and supervisory challenges involved in the matter.

Month: Categories: Banking Current Affairs 2018

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