New Delhi: The government is considering introducing Islamic banking in the country. The Ministry of Finance recently asked the Reserve Bank of India (RBI) to reconsider such a possibility.
The RBI formed a committee to look into the matter after Prime Minister Manmohan Singh’s visit to Malaysia in 2010, when Singh indicated that the government was open to the idea of a banking system that could address the long-standing concerns of the business section of a minority community.
Experts believe that in order to tap the immense investment potential of the oil-rich Middle East, it was in India’s interest to introduce Islamic banking.
An official of the National Committee on Islamic Banking told Gulf News: “It will provide the opportunity to bring a large section of the Muslim population into the mainstream. It is a sophisticated banking and finance structure based on moral and social values and is compatible with modern-day financing needs.”
However, Dr Mansour Alam, Chairman of the Indo-Arab Economic Co-operation Forum (IAECF) said: “The system does not have any religious connotation. And will be open to all irrespective of religion and caste. Hence, the term ‘participatory banking’ is considered more appropriate and acceptable than Islamic banking.”
More than 50 countries, including the USA, the UK, France, Japan, Singapore, Saudi Arabia, Germany, China and Malaysia have recognised Islamic banking and finance. And major corporate banks such as Citigroup, HSBC, Deutsche Bank and Standard Chartered have Islamic banking windows.
Incidentally, in many countries, 30 to 40 per cent of investors in this banking system are non-Muslim.
Islamic banking is based on the principles of Islamic law (sharia) and guided by Islamic economies. Two basic principles behind such a banking system are the sharing of profit and loss and significantly; it prohibits the collection of interest, which is not permitted under Islamic law.
The IAECF official said: “Due to its economic benefits, countries, irrespective of the size of the Muslim population, are trying out different ways to become leading centres of Islamic banking. And they are seeing a surge in the number of non-Muslim people opting for it.”
Experts said that the recent past had shown that while the world faced a severe economic crisis, Islamic banks continued to grow unabated. And this industry is growing at about 20 per cent to 30 per cent annually.
“Since the core principle of the system is sharing in both profit and loss, it would reduce the impact of the financial slowdown in Western countries. And if India were to introduce the system, the concept was likely to boost the economy of the country as well as the entire South Asian region,” Dr Alam said.