RBI rules out Islamic banking in India, a decision likely influenced by the current government's stance on Sharia-guided financial products.

INDIA NEWS By Aniket Chakraborty Feb 19, 2025 Arrow

Islamic banking prohibits interest payments and fees, instead using alternative methods like property buy-back and profit-sharing agreements.

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Global Islamic banking is a $2-trillion industry, with London emerging as a major hub and several Western countries offering these services.

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Muslim community in India, 180 million strong, shows lower banking participation with only 7.4% share in bank deposits and loans.

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Some Islamic-friendly products exist in India through NBFCs, cooperative societies, and Kerala's Cheraman Financial Services Ltd.

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Government cites Jan Dhan accounts as sufficient for financial inclusion, questioning need for religion-specific banking.

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Legislative changes would be required to implement Islamic banking, as current laws mandate interest-based banking.

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Concerns about terror funding and Sharia board oversight remain unstated objections to Islamic banking implementation.

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Indian financial system already accommodates community-specific structures like Hindu Undivided Family (HUF).

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Previous UPA government and former RBI governors, including Raghuram Rajan, had considered introducing Islamic banking products.

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