The Reserve Bank of India (RBI) is pondering upon to work with Centre to introduce interest-free banking to control financial exclusion for religious reasons, possibly opening Islamic finance to the largest Muslim minority population in the world.
It made the proposal in its annual report last week, which marks a shift in stance by the central bank, which has earlier said Islamic finance could be offered through non-bank channels such as investment funds or cooperatives.
RBI said it would consider coming up with interest-free banking products in consultation with the government, as this opens the prospects of supportive legislation.
"This is definitely a significant development as it is the first time that the RBI has concretely mentioned that it will now work with the government to introduce Islamic banking," said Saif Ahmed, managing partner at Bangaluru-based Infinity Consultants, was quoted as saying by news agency ‘Reuters’.
"For Islamic banks to function in India, separate parallel legislation or an amendment needs to be passed by Parliament and that can only happen with the active support of the incumbent government," he was quoted to have said