RBI considering to allow Islamic financial institutions as NBFCs

RBI is considering of allowing Islamic financial institutions to function as NBFCs as they are not allowed under present laws.

As per Indian banking rules, depositors must be paid interest for their money in banks, which is not permitted by Shariah, the Islamic banking principles.

RBI will form new legislation for Indian Islamic banking.

RBI’s proposal on Islamic banking came up when Kerala government consider a JV to set up a financial institution based on Islamic banking principles.

Transaction Reference:BS

Islamic NBFC's in India

Industry analysts at the International Islamic Finance Forum in Dubai, predicted that world’s Shariah-Compliant bank assets will reach $4 trillion by 2020.

Effort to establish interest-free financial institutions have been made in different countries at different times at individual, community and governmental levels.

The purpose of establishing Islamic NBFC’s is to avoid Riba, or interest and providing cost-free loans to the needy.

Individual efforts emerged in different parts of the world, some in the form of Baitul Maals, Anjuman (associations), cooperatives, non banking companies, special finance companies (nidhis) or even in the form of banks.

Indian Muslims have always been trying to manage their economic affairs within the framework of the Shariah.

As per RBI, NBFCs are broadly classified into three:
1) Those accepting public deposits
2) Those not accepting public deposits but engaged in financial business; and
3) The Core investment companies holding at least 90 percent of their assets as
investments in the securities of their groups/holding/subsidiary companies.

The first NBFC in India claiming to do business on Islamic principles called Al-Mizan was started in 1980 at Madras.
Some other Islamic NBFC’s in India are
Barkat Investment Group,
Al-Amin Islamic Financial & Investment Corporation of India
Al-Barr Finance House Ltd.
Syed Shariyat Finance
Assalam Finance & Investment Ltd.
Baitul Islam Finance Ltd.

The first Muslim Fund in the country was established at the Rampur State of North India (Nasir, 1997).

Muslim Funds, cooperative credit societies and welfare societies are all nonprofit
Institutions to rescue people from the ruthless moneylenders or out of a concern for the economically backward and downtrodden.

Major points for Islamic NBFCs in India
They should be well capital adequate besides being cautious in their business operations.
There should be lender of last resort for Islamic financial institutions.
Need of advocacy groups that works in creating favourable conditions for Islamic oriented businesses.
Constant check on tainted profit seekers who violate the Islmaic laws.
People also need to be informed about the Islamic finance principles so that at the time of crises they do not create unnecessary panic.

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