ISLAMIC BANKING

In December 2015, The Central Bank of India which is otherwise known as The Reserve Bank of India (RBI) through its specially constituted expert panel on Medium-term Path on Financial Inclusion decided that banks open a “Separate Window offering Interest-free Deposits and Advances to address Financial Exclusion based on faith”. In effect RBI's recommendations bring up the concept of Islamic or Sharia or Halaal or Participatory Banking in India for the entire 1.25 Billion Indian brethren.
Commercial banks may be enabled to open specialised interest-free windows with simple products like demand deposits, agency and participation certificates on the liability side and cost-plus financing and deferred payment, deferred delivery contracts on the asset side.

Simply put Islamic Finance involves taking into account of the moral consequences of financial transactions and ensuring that contracts are fair and equitable for all parties involved. Reward should be linked to effort, responsibility and risk-sharing.

As we are always one of the first organisations to support any new initiative from the government of India, we are proud to launch a dedicated desk christened “Sharia Advisory Desk’ to create awareness, advise & simultaneously guide our valued members on this niche banking vertical which has already been popularized and practiced in several  major countries in the world. Since our internal research envisage that eventually banks, corporates, trusts and individuals may need professional advice on this sun-rise area, we have thrown open this good-will service to members and public at large.

Indian Central Bank (RBI) having taken the cue from capital market regulator has recently recommended introduction of Interest-free Banking by Indian commercial banks. Government is reported to be working on the modalities after the RBI recommendation.

In recent years Islamic finance has emerged as one of the most influential tool for financial growth and inclusion. At present Islamic banking and finance practices have spread to about 75 countries of the world. The government of India has been weighing different way of options for accommodating Islamic finance practices in the existing financial framework of the country. Indian capital market regulator started the process by allowing Indian wealth management firms to launch Shariah compliant schemes. This was followed by the launch of Shariah Index by India’s prominent stock exchanges like BSE and NSE. Soon after companies having government stakes started venturing out to offer Shariah compliant schemes. Currently the Shariah compliant wealth management though nascent but growing at steady rate.

Trends show that by 2020, a major part of the economy in the Middle East will become Shariah-compliant. Conventional banks in the region are finding it challenging to compete with the emerging Islamic banks. As a result, many of them have either started Islamic Finance subsidiaries or converted their entire operations into the Shariah-compliant mode. The whole business of finance in the Middle East is converging to Shariah compliance. Even foreign financial institutions in the region are positioning themselves to compete hard to adapt to the new system.

With growth of Islamic banking and finance assets now estimated at $ 2.5 trillion and growing at 15% to 20% a year. The Gulf Co-operation Council (GCC) proportion of total Islamic banking assets has reached 40% and projected to rise to 50% in the next few years.

The spectacular growth of Islamic finance in the last two decade has led to great opportunity of capturing substantial portion of the savings of the Arab world. It is tempting to see that the vast majority of the uptake comes from the under-30 segment of the Islamic world, and it is this segment that holds the key to success for the Islamic finance industry identified by different nomenclatures.