Have you ever heard about “No Interest Banking”? Many of us are not familiar with this. But yes, there is a type of banking which doesn’t involve charging of interest and it is known as “Islamic Banking”. The Banking system which works on the principles of Islamic Law/ Sharia is known as Islamic Banking.
Islamic Finance Industry is expanding at 12% p.a. financial assets under Islamic Law is estimated roughly at US $ 2 trillion.
Source: World Bank as on 31.3.2015
Source: Ernst & Young
Islamic Banking vs. Conventional Banking
Islamic Banks vs. Islamic Window
Why there’s a need of “Islamic Window”?
On Nov 20, 2016 RBI proposed “Islamic Window” in conventional banks, to open the financial services for the much needed sections of the society. Central Government and RBI is giving a thought to this and planning for the introduction of the same.
As per census 2011, the Muslim population in India share 13.4% of total population. Among this, a huge portion of the section has not opted for the conventional banking system and was hoping for such reform.
This step will attract young Muslim entrepreneurs and will capitalize their new ideas and innovations. By this step, they will consider themselves as a part of the system and of global Islamic market.
What about earnings of banks?
This is the common question going to rise in everybody’s mind. Interest income is the revenue earned by the banks but here banks go for the profit sharing concept. It is a type equity participation in the business.
Challenges for RBI
- Banking Regulation Act, 1949:
- Does not allow interest free lending
- Does not allow investment on Profit / Loss Sharing basis
Which is against Sharia Law.
For the introduction of Islamic Banking government have to propose major changes in the current law.
- Standardization of products is difficult as different sharia board has different opinions about a financial instrument.
- Irrespective of huge growth, many banks are suffering from low profits.
How can encash it?
After the introduction of Islamic window, various opportunities are going to open and there’s always a first mover advantage. With our platform, we can make understand others about this concept.
We can tap Middle East countries even Indian Muslims, investors and bankers. By this way, our platform will get special attention of a special section of the society.