People often ask that if countries like UK, France and Switzerland can adopt Islamic banking, why can’t India? Perhaps they forget that unlike these countries, India has a history of communal violence since colonial days. Owing to this historical baggage it is politically inconvenient for any ruling party including Narendra Modi led BJP to support Islamic banking.
Thus on 9th December 2016 the State Finance Minister discarded RBI’s proposal of Islamic banking by saying that on consideration of inter-departmental group report, it is observed that even to introduce limited products, various legal changes would be required.
Moreover, the objectives of financial inclusion for which Islamic Banking was explored by RBI has no relevance, as Government has already introduced other means of financial inclusion for all citizens (like Pradhan Mantri Jan Dhan Yojna, Suraksha Bima Yojna, Pradhan Mantri Mudra Yojna etc). Furthermore the way RBI officials, cabinet ministers and the parliamentarians are now ignoring fresh queries in this regard, it is clear that the Government is not open for Islamic banking in India.
Earlier in 2006 the RBI’s Working Group (to examine the financial products used in Islamic banking) had mentioned that ‘as distinct from modern, conventional banking, Islamic banking due to its inextricable influence of religious doctrines has often evoked a sense of mysticism and curiosity’. After ten years RBI again analyzed; and this time recommended Islamic banking windows for financial inclusion. But the way it was proposed with Islamic tag instead of secular mode there were doubts that the Government would approve it. To maintain ethics in banking we may need to adopt principal guidance from religious doctrines. Instead of proposing any banking model with religious tag, RBI should have better proposed an Ethical Board to suggest ethical guidelines for the banking business in India. That Board should have comprised of scholars from different religions with banking background to suggest sought ethical guidelines. Since all religions guides towards ethics, ethical board should not be tagged with any particular religion.
It should also be noted the contemporary Islamic banking model has neither been promoted by the Prophet Muhammad ﷺ nor by his companions (Sahabas). Islam instead of promoting any banking model has rather instituted infrastructure of Baitulmaal to support financial prayers and interest free transactions. But despite prohibition of interest under Islamic governance, interest based lending were carried on by Non-Muslims. After decline of Islamic rulers in the world, Muslims were in need of innovative banking model that adhere to Shariah principles. Thus in 1950s Islamic banking model was articulated by using Shariah compliant financial products. Tag of Islam caused emotional attachment of Muslim community towards this particular banking model. This model helped bankers attract excess surplus capital held by Muslims especially from gulf nations. Later this model was introduced in many secular nations with prime objective of drawing surplus capitals from Muslims.
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