India Legal News: Separate Law for Islamic Banking

The governments of countries across the world are grappling with issues pertaining to Islamic laws in some form or the other.  The problem does not lie with Islamic laws but with the way it is being interpreted by so-called experts. India is not lagging behind, if you consider the fatwa that was issued by a Saharanpur (U.P.) based Islamic body in May, 2010. The fatwa placed a ban on working Muslim women from talking to their male counterparts without wearing a veil. Obviously, this ban shook the nation and drew flak not only from working Muslim women but also several other major Islamic bodies and media-persons in the country. The latest controversial issue pertains to the growing demand for introducing Islamic banking in India.

Islamic Banking: Indian Laws Do Not Permit Islamic Banking

The latest controversy pertains to the issue of the providing Islamic banking products and services in India. We’ve heard of all types of banking but Islamic banking is new to most of us. The system of Islamic banking follows the Sharia laws of banking that are against the practice of paying and charging interest. Currently, Indian laws do not permit Islamic banking. D Subbarao, Governor of the Reserve Bank of India, on May 20, 2010, said that as interest payment forms the basis of current banking principles and therefore, it is not possible to have Islamic banking in India. He further added, “Islamic banking is possible through a separate legislation.”

Islamic Banking: India's 1st Islamic Bank Functioning in Kerala

The issue of having Islamic banking came to the forefront with the talk of a proposed Islamic Bank in the state of Kerala. The bank is already in operation in the state since April, 2010. Controversy followed when a division bench of  the Kerala High Court  ruled that the state government and its agencies must not have any dealings with a new company registered under the Sharia laws of banking. Considering the court’s ruling, the RBI governor said, "Since this is a constitutional issue of whether a government can or cannot enter, we have nothing to say on that."

Subramaniam Swamy, former union minister, had also filed a petition in the court alleging the Kerala State Industrial Development Corporation for being at the forefront with private players in establishing an Islamic bank.

Let’s not forget, there are two types of non-banking financial companies in India i.e. those which accept deposits and those that don’t. The governor concluded the central bank's board meeting by saying that the issue whether India should have NBFCs working as per Sharia banking laws is under review and very soon, the decision will be announced.

There are mixed reactions to the proposal of having Islamic banking in India as many people have opposed the proposal saying that if this gets implemented then there should be separate laws governing irrational conduct by Muslims. Some say that demands of a particular community should be entertained even if it means changing our national laws. The country’s legislators and the legal fraternity have not voiced their views on how this can have far reaching legal implications across several communities.