[An increasing number of commercial banks around the world are considering the possibility of offering interest-free financial products.]
Mumbai: The Reserve Bank of India (RBI) has invited comments and suggestions on opening of "Interest free" windows in commercial banks as recommended by its Committee on Medium term Path for Financial Inclusion.
The committee headed by Deepak Mohanty in its report posted on the RBI website on December 29, 2015 had recommended that banks open a separate window offering interest-free deposits and advances to address financial exclusion based on faith.
"An increasing number of commercial banks around the world are considering the possibility of offering interest-free financial products. In many countries, this reflects the banks’ desire to offer services to a growing population interested in such products, but in several instances it is also motivated by the wish to tap the growing pool of international investors attracted to Shariah-compliant products", the committee observed in its report.
"At first, a commercial bank may only want to probe the potential of this market, and thus may be interested in launching a pilot project. The bank can take advantage of its existing branch network to open so-called interest-free windows, through which they can reach out to potential new clientele", the report added.
After making the above observations, the committee recommended that commercial banks in India may be enabled to open specialised interest-free windows with simple products like demand deposits, agency and participation securities on their liability side and to offer products based on cost-plus financing and deferred payment, deferred delivery contracts on the asset side.
The committee also recommended in the event that interest-free banking is allowed in India, the extant regulatory guidelines in respect of capital and liquidity as applicable in the case of commercial banks would have to be made applicable to those as well.
The Reserve Bank of India has requested the experts and people to send their suggestions and comments on above recommendations.
The suggestions can be sent via email (firstname.lastname@example.org and email@example.com) or by post to the Principal Chief General Manager, Reserve Bank of India, Financial Inclusion and Development Department, 10th Floor, Central Office Building, Shahid Bhagat Singh Marg, Mumbai-400001 by January 29, 2016.
An interest-free window is simply a window within a conventional bank through which customers can conduct business utilising only Shariah-compatible instruments.
At the inception of the window, the products typically offered are safekeeping deposits —on the liability side of the bank —and relevant trade-finance products for small and medium companies —on the asset side of the bank. It also requires the bank to institute appropriate firewalls to avoid the commingling of interest-free and conventional funds.