Islamic Banking

In November 2016, 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. RBI had also prepared a technical analysis report and submitted it to Union Finance Ministry for consideration.

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. As such, a more correct term for “Islamic banking” is “Sharia Compliant Finance”. 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.
  • It also prohibits direct or indirect association with businesses involving alcohol, pork products, firearms and tobacco.
  • It also does not allow speculation, betting and gambling.

Islamic banking is following five ways:

  • Mudarabah, a profit-sharing agreement,
  • Wadiah, a safe keeping arrangement,
  • Musharakah, or a joint venture for a specific business,
  • Murabahah, cost plus arrangement where goods are sold with a pre-determined margin of profit, Ijirah, a leasing arrangement.

So far Islamic Banking was not allowed in India because as per RBI, it is not consistent with current banking laws in India. Islamic banking which does not allow charging interest or taking of interest is inconsistent with our existing laws, Charging of interest is necessary to conduct banking operation in India because banks have to borrow on which it has to pay interest rate. So government which has to determine whether they want to permit Islamic Banking and if so they have to enact a law that is consistent with Islamic Banking”.

Currently, 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. 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.

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Comments

  • Gulshan Faroooq
    Reply

    Islamic banking is the successful banking system and has been adopted by many countries, with GREAT success ; and RBI should also adopt it as soon as possible,

    • Rahul

      are you directing to rbi or suggesting?

  • mudasir khan
    Reply

    Best banking in the world is islamic banking.

  • santu
    Reply

    Islamic banking challenged the current banking regulation.
    A customer will not encourage to diposite any kind.
    So they invest on gold land and other rosources.
    Thus money could not flow
    and decrease the eco development.

  • anand
    Reply

    mr.farooq your expectation is good. i am also expecting the same thing.but how can RBI provide the salaries to their staffs. you told that this system has been adopted by some countries. good thing. but our govt has to set up one committee to discuss abt the system, and they must go to some countries who were adopted the system of banking, and should monitor ,how they provide salaries to their staffs and whether the system is suitable for our country or not.
    becoz in our govt ,at the time of each and every budget submission, our govt made dissmissed all the interests towards the loan, which was already loans provided to farmers (agri loan), thus we are already following that kind of banking system in some criterias. even though govt providing loan continuously to farmers. so this system may be possible in some countries what you told. but not in our country becoz banks providing long term,short term loans to some kind of industries like large scale and small scale. beside this issue when we turns our attention towards international business like import and export, the each and every govts providing the security or insurance schemes , for the sake of this, our country couldnot adopt this islamic banking system. or else if we follows india may face lot of financial crisis,admin problem,problem in implementing the welfare schemes. becoz india is trying to provide lot of welfare schemes to BPL people in our country.OK.

    • tariq

      Mr. Anand …..very good xpalination..

  • Bilal Ibnu Shahul
    Reply

    Islamic Banking is a great option as it would be beneficial to debtors and as it is targets profit through new ventures, it would promote new enterprises in Indian economy which would be greatly beneficial to the whole country. RBI and the Central Govt want to quit conventional and (only) western ways of thinking in banking sector and looks forward to new innovative ideas like Islamic Banking.

  • dr m yousuf
    Reply

    collection of interest is not a matter of concern but helping others without any interest is real indication of humanity.

  • USA Army
    Reply

    Islamic banking is very Mad type of banking . . . Very Illogical !

  • abhishek
    Reply

    islamic banking must be banned in india..

  • Mohd.Asif
    Reply

    Nobody accept banking without interest in india because indian people like making more money in the form of intrest

  • Mahesh
    Reply

    Hindu Banking, Sikh Banking and so on …

    • tariq

      Mahesh Sir actually it is interest free banking,and in Islam interst Haram so this interest free banking coined as a Islamic banking……. and world has to discuss about it before adopting…

  • mna
    Reply

    can anybody tell me how many islamic banks are in India and where they are ?

  • Yogesh
    Reply

    mna article itself says that it is not allowed in India.

  • Amit Khan
    Reply

    In india this system cannot be adopted. the supporters are from the some community. We live in India not in Syria. This type of suggestions will definitely help some countries to become super power.

  • vishnus7
    Reply

    its was not possible to India, because our commercial banking is fully droped islamic version of banking, it was good for those countries their economies are fully developed,also they were looking to export benebits.

  • NA
    Reply

    if islamic banking was brought in india earlier, we can survive the current financial crisis easily. bcoz. Our banks are on the verge of collapse, and islamic banking is just opposite in many of functions of our commercial banks. If we brought it in india i believe it gives miracle changes in our life

  • shruti
    Reply

    don’t worry NA sir, our banking system can never collapse. It maintains crr that is a fixed amount of cash with rbi, slr that is 21.5 % of total ndtl in form of cash or gold, thus it always has a deposit. someone surely have mistakenly informed you that our banking sector is collapsing. It is the fastest growing sector in india as per the reports and promising too. It is good for those countries that have ample capital, but surely not for us.

  • rohit
    Reply

    no long talk , as per islamic banking is concerned , according to sharia law ,interest is prohibited but commissions /operating charges are allowed .

  • SILADITYA
    Reply

    no in my points of views it is no need to allow to islamic banking