The Reserved Bank of India plans to introduce Islamic financing in the country to help finance some sectors that can only borrow money that is free of interest.
Islamic or Sharia financing is a finance system based on the principles of not charging interest, which is prohibited under Islam.
In its annual report for 2015-16, the RBI explained that some sections of Indian society have remained financially excluded for religious reasons that preclude them from using banking products with an element of interest.
“Towards mainstreaming these excluded sections, it is proposed to explore the modalities of introducing interest- free banking products in the country in consultation with the government,” says the RBI.
Despite meeting strong opposition from the ruling Hindu-nationalist Bharatiya Janata Party, Jeddah-based Islamic Development Bank (IDB) earlier this year announced it will open its first Indian branch in Ahmedabad. Exim Bank, the government’s external lending agency, had signed an MoU with IDB for a US$100 million line-of-credit to facilitate exports to IDBs 56 member countries.