Islamic banking is not permissible under existing rules, RBI Governor D. Subbarao said here on Thursday. He was addressing a function held here to declare Ernakulam district as one of the first in the country to have achieved ‘meaningful financial inclusion’.
Mr. Subbarao said the State government had put forth a suggestion to make use of Islamic finance and RBI had studied the proposal. "We appreciate the objective, but there are some legal problems," he said.
The rules would have to be changed if Islamic banking was to be allowed, he said. Alternative channels were available now to utilise the funds from outside, he pointed out, without elaborating further.
Earning interest on deposits is prohibited under Islamic banking. Instead, the money could be utilised for enterprises and the profit earned from their functioning could be shared by investors. There had been offers of Islamic funding schemes from NRIs and groups in the Middle East and other countries. The State government had been exploring avenues to mobilise potential deposits from resources which were remaining idle. Kerala State Industrial Development Corporation (KSIDC) had mooted utilisation of funds under Islamic funding.
Keywords: Islamic banking, RBI
Non-interest based Banking (NIB) or Islamic Banking is a
relatively new market trend in some parts of the world. It is a
niche banking area, where a certain people, countries and
customers have adopted it successfully and continue to attract
sizeable investible funds. All major financial centers, e.g.
London, New York, Hong Kong, Singapore and for sure, UAE have
created sales and service centers or got involved in growing
Islamic finance market. Malaysia has been a successful market
running normal banking and Islamic banking parallel. To avoid
controversies, it can be termed as "non-interest financing" and
it can attract a lot FDI for India. Middle East has been a great
investor to the West. In the present economic situation of the
West, they are looking at India and China. India is a better
choice but only if India can "package" a product to attract such
FDI. Socialism has failed and Market economy has created USA as
biggest borrower in the world. Time to think on Non-Int
Financing.
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