ISLAMIC BANKS IN INDIA

What are Islamic Banks in India?
Islamic Banks are common in all the Islamic countries. However, in India it is a completely new concept. The first Islamic bank to be given license in India by the RBI was Cheraman Financial Services Limited, set up in Kerala in 2013. Cheraman financial services limited is termed as Islamic Bank but it functions as NBFC. With 11% stake in this NBFC, Kerala State Industrial Development Corporation is the single largest stakeholder. No other stakeholder can have more than 9% of the stake. 


 Where is first Islamic Banks established ?
first foreign Islamic bank to set up its branch in India was Islamic Development Bank from Jeddah Saudi Arabia. The branch was established in Ahmedabad as a part of memorandum of understanding signed with Exim Bank (Exim = Export/Import).

What are importance of Islamic Banks?
Islamic Banks are an important instrument of financial inclusion even. According to the belief of Islam, receiving interest and paying interest both are considered to be illegitimate. Hence the entire banking
system becomes a illegitimate. Therefore, in order to connect the Muslim population with the financial
system Islamic Banks became important.

How do Islamic Banks work?
The Islamic Banks follow the Islamic rules and do not engage themselves in any activity which is considered to be non-Islamic. They will get money from the interested parties not in the form of deposit but in the form of investment. This money will be provided to the interested parties engaged in manufacturing services, mining, construction etc. Instead of getting interest they will receive a part of the profit. It will be distributed among those who had contributed towards the Islamic Bank. Hence it involves risk. The Islamic Bank may incur losses as well as profits. It will not engage itself in any economic activity which is related to betting, gambling, liquor etc. which are considered to be illegitimate in Islam.

What is work RBI for Islamic Banks?
Sometimes back the RBI had proposed that even in conventional banks in India, Islamic window will be
set up. The purpose will be to provide Islamic banking facilities. However, the banks in India showed their
apprehension and said that they do not have any experience of providing Islamic banking services, hence the plan was dropped.

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