India’s Central Bank Rules Out Introduction of Islamic Banking

via RBI rules out introduction of Islamic Banking – The Times of India.

KOCHI: Reserve Bank Governor D Subbarao today ruled out introduction of Islamic banking in the country but said other methods for channelising funds based on the principles of Islamic law can be looked at.

“Islamic banking is not possible”, he said, adding the central bank could look at other vehicles based on Islamic banking principles to channelise NRI funds.

Replying to a question on the issue, Subbarao said: “There are some legal problems. We have studied the issue. We appreciate the objectives behind the request. But there are some legal problems. It can be got around not through banking, but other vehicles”.

He said that introduction of such banking was not possible in absence of a separate law for Islamic banking.

One step forward, two steps back? What are the other vehicles?

Elsewhere in India this week, the last of the known Mumbai killers was sent to allah by the infidels.

23 thoughts on “India’s Central Bank Rules Out Introduction of Islamic Banking

  1. “What the Heck?” They have their own banking system?

    Let me guess how it works…they can ONLY get money from “ripping-off the U.S.”, “stealing” it, “ransom money”, and “charging for be-headings”, etc….am I close?

    • No not even close and you should get educated on the topic if you plan to discuss it in any rational matter or want to do something about it.

      • “My BAD!” Then “educate” me! I haven’t done any “International Currency Exchange Contracts” since the late ’90’s…perhaps you can explain how things have changed since then.

        • There are websites dedicated to the topic – several listed on our blogroll; also search our archive category on sharia finance

          Volume is low on this but check it out too:

      • AND, NO! I am not being “facetious”…Since the destruction of the, Twin Towers (where ALL the banking records “were” kept), I know things have changed…that I am NOT aware of!

  2. Islamic banking has the same purpose as conventional banking: to make money for the banking institute by lending out capital. But that is not the sole purpose either. Adherence to Islamic law and ensuring fair play is also at the core of Islamic banking. Because Islam forbids simply lending out money at interest (see riba), Islamic rules on transactions (known as Fiqh al-Muamalat) have been created to prevent this perceived evil. The basic principle of Islamic banking is based on risk-sharing which is a component of trade rather than risk-transfer which we see in the conventional banking. Islamic banking introduces concepts such as profit sharing (Mudharabah), safekeeping (Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijar).
    In an Islamic mortgage transaction, instead of loaning the buyer money to purchase the item, a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments. However, the bank’s profit cannot be made explicit and therefore there are no additional penalties for late payment. In order to protect itself against default, the bank asks for strict collateral. The goods or land is registered to the name of the buyer from the start of the transaction. This arrangement is called Murabahah.
    Another approach is EIjara wa EIqtina, which is similar to real estate leasing. Islamic banks handle loans for vehicles in a similar way (selling the vehicle at a higher-than-market price to the debtor and then retaining ownership of the vehicle until the loan is paid).
    An innovative approach applied by some banks for home loans, called Musharaka al-Mutanaqisa, allows for a floating rate in the form of rental. The bank and borrower form a partnership entity, both providing capital at an agreed percentage to purchase the property. The partnership entity then rents out the property to the borrower and charges rent. The bank and the borrower will then share the proceeds from this rent based on the current equity share of the partnership. At the same time, the borrower in the partnership entity also buys the bank’s share of the property at agreed installments until the full equity is transferred to the borrower and the partnership is ended. If default occurs, both the bank and the borrower receive a proportion of the proceeds from the sale of the property based on each party’s current equity. This method allows for floating rates according to the current market rate such as the BLR (base lending rate), especially in a dual-banking system like in Malaysia.
    There are several other approaches used in business transactions. Islamic banks lend their money to companies by issuing floating rate interest loans. The floating rate of interest is pegged to the company’s individual rate of return. Thus the bank’s profit on the loan is equal to a certain percentage of the company’s profits. Once the principal amount of the loan is repaid, the profit-sharing arrangement is concluded. This practice is called Musharaka. Further, Mudaraba is venture capital funding of an entrepreneur who provides labor while financing is provided by the bank so that both profit and risk are shared. Such participatory arrangements between capital and labor reflect the Islamic view that the borrower must not bear all the risk/cost of a failure, resulting in a balanced distribution of income and not allowing the lender to monopolize the economy.
    Islamic banking is restricted to Islamically acceptable transactions, which exclude those involving alcohol, pork, gambling, etc. The aim of this is to engage in only ethical investing, and moral purchasing. The Islamic Banking and Finance Database provides more information on the subject.[30]
    In theory, Islamic banking is an example of full-reserve banking, with banks achieving a 100% reserve ratio.[31] However, in practice, this is not the case, and no examples of 100 per cent reserve banking are observed.[32]
    Islamic banks have grown recently in the Muslim world but are a very small share of the global banking system. Micro-lending institutions founded by Muslims, notably Grameen Bank, use conventional lending practices and are popular in some Muslim nations, especially Bangladesh, but some do not consider them true Islamic banking. However, Muhammad Yunus, the founder of Grameen Bank and microfinance banking, and other supporters of microfinance, argue that the lack of collateral and lack of excessive interest in micro-lending is consistent with the Islamic prohibition of usury (riba).

    • “Thank You, Bang Uddin!” Very interesting! “Almost” a legit way to do funding…no? if a “cap” on interest rates and a way for borrower and lender to compromise if one or the other can no longer maintain a loan…this it’s NOT too bad. What do you think?

      In the banking systems around the world…you never know who is going to end up “holding” the note on your house. I guess that’s where the real problem comes in…can the lender “sell” the note to someone else AND that someone else “change” the provisions?

  3. Why would moslems trust non-moslems with money for which they worked hard to take from others in a bank-unless they are confident they will control the bank in a short time.

  4. I for one am appreciative of Bang Uddin taking the time to explain Islamic finance (and for Creeping’s determination to keep this a stand-up site). It occurred to me as I was reading how representative Sharia banking laws are of Islam in general–the equivocation, the semantics and wordplay to achieve the same result in a rationalized way. In Iran, a prison guard will go through a sham wedding ceremony with a female prisoner the night before her execution so he can rape her with the ayatollah’s sanction. Islam is the religion of peace as once the world’s population submits, the world will be at peace. It’s not lying if done in the service of Allah. If borrowers and lenders make enough clever maneuvers this way and that , it won’t be usury. And on it goes.

    • Given a choice, I would definitely avoid Bank Islam, even if it offer high interest rate, because first and foremost, I am a Nonbeliever and feel most uncomfortable to be imposed by any business who deal via Bank Islam. Islamic banking is still inferior to Western banking. It is disgusting to be imposed by a totalitarian ideology or any business that used Islam to degrade our nonbelievers life. Money is meaningless, if we nonbelievers have no freedom. Islam and Asian failed to inspire confidence with the way they treat people.

  5. Anyway, why should we trust Islamic banking since we are Nonbeilevers and not one of them. There are socalled Non-islamic business who deal with Islamic banking and imposed on us Nonbelievers via their association with such an alien banking system, that us Nonbelievers l feel most uncomfortable about. Anyway, why should we trust any banks. Anyway, money or banking is just a transaction and should not interfere with how us nonbelievers want to live our life. some society have put too much emphasize on money to the point that they let their money be controlled by a totalitarian ideology and that is dangerous for our freedom..

  6. “Zakat” or Islamic Charity funds Islamic Military. Obama has said that he “support[s] Zakat” . The AIG Sharia Financing provisions provided Millions of Dollars to JIhadists as did HSBC’s program and others. Get educated people. The US Taxpayers are FUNDING Islamic Jihadists to KILL US.

    • Correct. Muhammad did not explain how islamic banking works, the muslim brotherhood did. Anyway islamic banking is like you said, jihad financing. stay away from islamic banking

  7. it is merely a scam on the part of the muslims to evade the rule of not participating in “usury” but, bottom line, the “profit” gained IS interest. it can be sugar-coated, re-named & painted a different color but it is still INTEREST. i, for one, would not trust any one of them as far as i could throw a grand piano!

  8. It is scary to see islam creeping into almost every banks in certain parts of asia, ie malaysia and causing so much insecurity. I don’t trust the banks or any banks in Asia. Already Asian foods are infiltraled mostly by the halal brigade stamp.

  9. I’m really loving the theme/design of your website. Do you ever run into any internet browser compatibility issues? A few of my blog audience have complained about my blog not working correctly in Explorer but looks great in Safari. Do you have any ideas to help fix this problem?

        • what I am saying is that it is a very OLD OLD OLDEST libel on JEWS – which is not able to be spoken openly in USA without being labeled a bigot- so they (#Occupy wall street, truthers, Muslims) use words like “greedy banker” banskters, Rothschilds etc – they are accusing JEWS of robbing them blind- a very old tired worn out jewhater meme

If sharia law continues spreading, you'll have less and less freedom of speech - so speak while you can!

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