Eighteen months after the Committee on Financial Sector Reforms under Raghuram Rajan recommended the inclusion of interest-free banking, the effort to add this salient feature of Islamic banking into the country's financial sector has gained momentum.
The reason lies in the very attractive stock pile of over $3.5 trillion lying with Arab investors. They will bank or invest them only in an “interest-free banking system” in consonance with the Sharia, the Islamic code of law. As of now, the Indian banking system does not have an option of people investing without seeking interest.
“The only stumbling block in almost all the savings and investments of the Arab world coming to India is the absence of regulation allowing interest-free banking,” said Dr Ausaf Ahmad, former chief economist of the Jeddah-based Islamic Development Bank. At a recent international conference organised by the Indo-Arab Economic Cooperation Forum and Delhi-based Institute of Objective Studies, there was a general consensus that India was ideally placed to be the investment destination because of its vibrant democracy, socio-economic policies and growth potential.
“Arab investors have lost confidence in the west after 9/11. The $500 billion India needs for infrastructure in the next five years, for instance, will come through the Islamic banking route,” said Abdur Raqeeb, convener of the National Committee on Islamic Banking and general secretary of the Indian Centre for Islamic Finance. He is confident that the finance minister would consider the proposal of interest-free banking.
From Vijaya Pushkarna's report on Prospects of Islamic Banking in India in TheWeekTo read the full report click here