New Delhi, Jan. 28: The Centre appears wary of introducing an interest-free Islamic banking system in the country at a time some Congress politicians and Muslim financiers are making a pitch for it.
The Shariah prohibits collection or payment of interest, so many Muslims now avoid opening bank accounts.
Advocates of Islamic banking say that introducing Shariah-compliant banking ----- where banks neither pay interest on deposits nor charge interest on loans ----- would benefit 15 crore Indian Muslims and also the economy by helping unlock the huge sums uninvested by the community.
A senior minister and key decision-maker, however, recently told a delegation of Islamic banking advocates that it would be better to use a neutral term because the label Islamic identified the system with a particular faith and could be challenged legally.
When the delegation, which included K. Rahman Khan, Congress MP and Rajya Sabha deputy chairperson, came up with participatory banking as an alternative, the minister apparently said: You have resolved a problem.
He, however, did not give a commitment about taking the issue forward although the Prime Ministers Office has received a report by a committee, headed by the cabinet secretary, that has gone into the subject and made recommendations.
An official said the government would tread cautiously, fearing a possible backlash from the Rashtriya Swayamsevak Sangh-BJP, which has already accused the ruling alliance of using the Sachar report to pamper Muslims.
Under Islamic banking, the money deposited is used to finance projects on ownership basis, and the depositors share in the profit or loss. Islamic banking is currently not allowed under Indias banking act, but is allowed through the non-banking financial institution route.
Khan and other advocates of Islamic banking ---- such as Mohammad Manzoor Alam, president of the Indo-Arab Economic Co-operation Forum ---- plan to continue pressing their case, beginning with the Indo-Arab economic summit here on February 3 and 4.