Islamic banking proposal could see ‘trillions of dollars’ flood into India

Islamic banking: Moves by the  Reserve Bank of India (RBI)  to offer  its banks an “Islamic window” through which they would be able to introduce a limited number of Sharia-compliant or interest-free banking services could lead to “trillions of dollars” of Gulf money being invested in the sub-continent, the Indian Centre for Islamic Finance (ICIF) said  yesterday.
The ICIF was responding to last week’s announcement from the RBI that it was looking at ways of bringing in Islamic banking practices as a means of opening up mainstream financing channels to those of  its Muslim citizens who currently refuse to use traditional banking services on religious grounds.
Approximately 172 million, or just over  14% of the country’s population are estimated to be Muslims, an indeterminate number of whom  prefer to invest in gold rather than contravene the Islamic prohibition on interest-bearing loans. Some districts, especially in West Bengal, are considered ‘negative zones’ by the banking sector.
“There are various sovereign funds in Gulf countries with trillions of dollars waiting to invest in India. Introduction of Islamic banking will give a green signal to people in nations like the UAE, Qatar and Bahrain to invest here,” ICIF General Secretary H Abdur Raqeeb said this week.
The RBI has been looking at the possibility of introducing Islamic banking for some time, and it is almost certainly a coincidence that its recent announcement came in the week that Prime Minister Modi dramatically withdrew the 1,000- and 500-rupee bank notes from circulation both as part of his anti-corruption drive and in a bid to encourage more Indians to open bank accounts. Both initiatives will nevertheless will serve to highlight just how  woefully underdeveloped the country’s  banking system remains.