As per the World Bank there has been a surge of interest in the Islamic finance even in non-Islamic countries. The banking model that refers to the Islamic law or Sharia, popularly known as Sharia banking cites the fundamental principle of Islamic finance with the rejection of interest-based banking model. As per the Islamic law, a Muslim is strictly not allowed to both pay and accept interest. Thus, Sharia banking means money should be deposited in a bank, but without any interest rates. The deposited money cannot even be used for trading, gambling or in alcohol or pork.
Recently, the Reserve Bank of India has also proposed the opening of an ‘Islamic window’ in banks to ‘gradually’ introduce Sharia-compliant banking in India.
The Sharia concept is primarily aimed to enable banking services to devout Muslims who do not prefer conventional banking options due to religious restrictions which include not taking credit cards from banks. According to a report released by Sachar Committee back in 2006, Muslim holds 12 per cent of accounts in public sector banks and 11.3 per cent in private sector banks which is less than their share of 13.4 per cent of the overall population.
In the wake of the above-mentioned facts, the introduction of Sharia or Islamic banking could onboard more Muslims into the banking ecosystem to further boost the inflow of institutional wealth from people/ entities operating in the Islamic world to the Indian economy. This banking model is not just limited to the Muslims, but other communities who are drifted towards ethical banking could be allowed to enrol.
India itself has been firm on the adoption of Sharia banking model. A committee headed by Raghuram Rajan (who later became the RBI Governer), submitted a report to the government in 2008, without mentioning Sharia banking, suggested the need of having an interest-free banking model in India. The details of the report published by The Indian Express said that the non-availability of interest-free banking products result in economically disadvantaged Indian being not able to avail bank product and services.