My View on "ISLAMIC BANKING – Shattering the concept of Commercial Banking"

The terms 'Hire Purchase' and 'Lease financing' are familiar among those associated with financial institutions particularly, banking. In the case of higher purchase financing, we add the interest element and collect the amount in installments over a fixed period of time. In Islamic banking, instead of interest, a fee is loaded and the same is recovered from the user. Here, the ownership remains l with the lender until all the installments are paid by the borrower. The relationship between the lender and the borrower is something similar to that of a seller and buyer. Similarly, in the case of lease financing, lease rent is collected from the user and the asset would be transferred after a specific period of time either to the lessor or lessee depending upon the terms of the contract. These are just two examples which are very close to Islamic Banking. Islamic Banking is more transparent. It recognises partnership approach to banking and so better monitoring and follow up supervision is ensured as the banker is also keen in running of such enterprises supported by it in a profitable way. 

Advantages for India: 

In the present CAD crisis, allowing Islamic Banking in the country, would bring in huge flow of foreign investments from friendly countries such as UAE and others which would help in long term stability of foreign exchange. It is understood that even when the Indian currency is falling in value every day, none of the foreign investors in banks like HDFC, ICICI etc., have taken away any of their investments in these banks. So, allowing Islamic Banking will give long term stability to our economy. No going back to IMF as we were doing earlier. Now also such fears are looming large. Traditional banking will have good competition to meet with and so they will work more efficiently and it will improve customer services in terms of cost of providing various services.

Caution while allowing Islamic Banking:

There may be chances of funds from terrorists' groups to come to India through this banking system. Of course, a robust oversight system and suitable checks and balances would need to be in place which RBI is capable of taking care. 

- S.Santhanam