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Islamic Banking in India

Islamic banking is the banking based on the Islamic law (sharia). According to Islamic law the interest is prohibited in the process of banking. The payment as well as the acceptance of interest is prohibited in Islamic law.

In Islamic banking, the banks will conduct business and the outcome of business will be shared with the customers. In Islamic banking, not only the profit is shared with customer but the loss too. The acceptance as well as the payment of interest is not there in the Islamic banking. In the sense of Islamic banking the risk of investment is shared between the banker as well as the investor.

The establishment of Islamic banking in India is not possible as per the current rules and regulations of Reserve Bank. According to the law the banks of India are not permitted to conduct business. The studies are made on the issue by Reguram Rajan and the suggestions favoring the set up of Islamic banking are made.

Islamic banking can bring great changes in the areas of real estate, capital funds as well as mutual funds. In Britain there are many banks running under Islamic law. The general reluctance shown by many people to this banking approach is due to the name “Islamic”. When the similar products are launched under different name people are much more interested.

Islamic Bank in Kerala

Islamic Bank in India

The first Islamic bank in India will be situated in Kerala. The first Islamic bank in Cochin, Kerala will start functioning in 2010. The Islamic bank is helpful for the non-residents of India (NRIs) and who shortly return to India after loosing or resigning job or business abroad. Islamic banking is a profit or loss oriented bank. The Islamic bank’s back bone is its profit. We see many poor agriculturists and business people committing suicide while financial crisis in India. They do so because of the great interest on the loans sanctioned by the nationalized and private financing companies of India. Here is the solution to the problem of interest. The Islamic bank is an interest free bank. The interest free Islamic bank is a corporation to enable the poor and rich to live a better life with options to education and business.

Islamic bank offers options for higher studies and business. In this world of fight and tight competitions to win over others we all need money, luxurious cars, home, etc. Though we have a good paid job we may not be able to pay the interest charged by the other banks for the personal, car or home loans we take up. So, here comes the Islamic bank as a friend to help you out with free interest financing. We are repeating it again that its not less interest banking, rather an interest free Islamic banking. The Islamic bank for example buys your dream home and gives you it on rent basis for a period of time and later it will be registered into your name after a fixed period. Thus, the Islamic bank allows you to sleep happily in your home.

At the beginning the Islamic bank will be registered as a non-banking finance company and later will be altered into a full-fledged Shari’ah-compliant bank. The Islamic bank should not be treated as a bank as they do not charge any rate of interest from the customers. The Institute of Islamic Banking and Finance in India gets established under Public Societies Registration Act 1995 to ensure education on Islamic Economics, Banking and Finance. The Institute of Islamic Banking is not affiliated to any of the universities and it is an autonomous institute having its own syllabus to study. The Islamic banking institute is a non-profit, equal opportunity, professional educational research and training institution.

Being an interest free bank the Islamic bank does not come under the category of bank, but is under the category of financial institute. It also cannot issue cheque to its customers. The first Islamic bank of India will be in Cochin. The first Islamic bank in Cochin will be on its runway in 2010. The Islamic banking avoids the idea of interest rates of banking and believes on profit-sharing principles.

The Islamic banks have three kinds of deposit accounts as current, savings and investment accounts. The current and saving accounts of the Islamic bank are similar to that of the other bank as they will be safe and secure. But the investment account is not very much secure as it depends on the profit or The investment deposits in Islamic bank Cochin are treated for either a fixed or unlimited period of time. The customer will have to agree in advance to share the profit or loss in a particular proportion with the bank. The investment of the customer this way is not guaranteed. In fact you have to take greater risk as it might give you more profit.

The Islamic bank loans are different as you don’t have to pay interest and have to pay only the service charges. Thus, the Islamic bank loan profits the poor farmers, business men, pioneers and all the needy.

All the other banking services including money transfers, bill collections, trade in foreign currencies at spot rate etc. are also possible with Islamic banks. Thus, the Islamic banking in Cochin, Kerala will be gift to the pioneers of Kerala and India.

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