Reserve Bank of India is pondering over to open the door of the Islamic Finance. It has sent a proposal to the government of India to discuss it. The step of introducing the interest-free banking also known as Islamic Banking has been taken so that the religious causes based financial exclusion would be sorted out.
It is considered that the step of interest-free banking has been taken for the major Muslim minority inhabitants of India. It is expected that it would boost the economy and enhance the financial inclusion.
The reason is that the second largest religious group in India is Muslim. The annual growing rate of Islamic banking assets was noticed as 17.6 percent by the Ernst and Young during 2009 to 2013. By 2018, it is considered that this rate would be over 19 percent annually.
Around 180 million Muslims reside in India. As there is no way of interest-free banking in India so they are deprived of it. According to the Islamic law, anything based on interest is against the law.
The annual report of the central bank of India was released with this proposal last week when the RBI governor, Raghuram Rajan, departed, and Urjit Patel held the reins of it.
RBI previously said about the non-bank channels to offer the interest-free banking. Cooperatives and investment funds etc. were mentioned as non-bank channels.
The government also seems eager for interest-free banking. It has said that all the issues related to the legal, technical, and regulatory should be clarified before making decisions. A group has also been set up for Interest-Free Banking within the RBI so that issues related to the introduction of Interest-Free Banking should be effectively examined. This group has already given its report.
According to the Mohanty report, the good increase has been seen in interest-free banking internationally. In the financial inclusion, the interest-free banking’s role has also been clarified adequately. It has also been accepted in the report, Muslims’ inclination towards the formal banking is low; however, they might be somewhat inclined toward the long-term formal finance.