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India Says No To Islamic Banking
Last update: 27/11/2017

By Shakir Husain NEW DELHI, Nov†27 (Bernama) -- India has ruled out allowing Islamic banking in the country, saying the existing network of banks is†sufficient to cater to everyone's financial needs.

There has been speculation in recent years that the government could allow some form of interest-free banking for the financial inclusion of those who avoided conventional banks due to their interest-based system.

"There are different government and scheduled banks and the existing banking system is for all. Hence, the government is not thinking of introducing the concept of Islamic banking," Federal Minority Affairs Minister Mukhtar Abbas Naqvi told the local media.

"In India, the government will not allow Islamic banking, because India is a secular and democratic country," he said.

A central bank committee in 2015 had proposed the opening of special interest-free windows at banks to offer limited services before gradual introduction of Shariah-compliant banking.

Islamic finance due to its prohibition on usury would have appealed to India's 190 million Muslims and the marginalised communities looking for more ethical banking practices, advocates of Islamic banking said.

Abdur Raqeeb, Secretary-General of the Indian Centre for Islamic Finance, who has lobbied for Islamic banking, said Mukhtar†Abbas's statement was†disappointing.

"This is a very unfortunate stand of the government. It may be due to the prevailing political scenario in the country," he said in reference to a recent rise in communal sentiments.

Abdur Raqeeb said Islamic banking would encourage greater participation of Muslims and other communities in investment activities.

"There is a misunderstanding that it is only for Muslims. Islamic banking is inclusive in nature, based on risk-sharing between a bank and its customers, focuses on the real economy and generates employment. We should look at the successful example of Malaysia where 40 per cent of Islamic banking customers are from the Chinese community," he told Bernama.

There has been some discussions on Islamic finance's potential benefits for India in securing big infrastructure funding via sukuk and to attract investment from wealthy Muslim countries, but no clear roadmap has emerged due to India's divisive electoral politics hindering a healthy public discourse on the subject. The concept is opposed by Hindu right-wing groups and politicians.

Interest-free finance and banking was mooted in 2008 by a Planning Commission Committee headed by former Reserve Bank of India (RBI) Governor,†Raghuram Rajan.

The RBI two years ago recommended starting interest-free windows in conventional banks but later decided not to pursue it.

Abdur Raqeeb said the minister's statement was†a temporary setback but the efforts for the introduction of Islamic financial institutions in the country with the world's second largest population of Muslims should continue.

"We'll continue our efforts in this regard by highlighting its benefits in promoting financial inclusion, entrepreneurship and investment for infrastructure development that Prime Minister Narendra Modi envisages," he said.



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