RBI proposes Islamic window in conventional banks

The Reserve Bank of India (RBI) has proposed the opening of Islamic window in conventional banks for gradual introduction of Sharia-compliant or interest-free banking in the country.
In this regard, RBI has also prepared a technical analysis report and submitted to the Union Finance Ministry for its consideration.
What is the issue?

• Islamic or Sharia banking is a finance system based on the principles of not charging interest. The charging of interest is prohibited under Islam.
• However, in recent times both the Union Government and the RBI have been exploring the possibility of introduction of Islamic banking for a while to ensure financial inclusion of those sections of society that have remain excluded due to religious reasons.

How RBI going to implement it?
Initially, RBI is planning to introduce a few simple products similar to conventional banking products through the Islamic window. But it will be after necessary notification issued by the Union Government. In later stage, full-fledged Islamic banking with profit-loss sharing complex products may be considered on the basis of experience gained in course of time.
What are difficulties in implementing Islamic window in conventional banks?
Indian banks have no experience in the Islamic or Sharia banking. There are also lots of complexities of Islamic finance. There are also various regulatory and supervisory challenges involved in the matter.

Month: Current Affairs - November, 2016