Mumtaz Alam, IndiaTomorrow.net,
New Delhi, September 5: The Reserve Bank of India, in its Annual Report 2015-2016 prepared under the supervision of outgoing chairman Raghuram Rajan, has proposed “to explore the modalities of introducing interest-free banking products” to mainstream sections excluded on religious ground.
The RBI aims to tap the 180 million population of Muslims who consider interest forbidden and so their huge majority have been away from the mainstream banking system.
“It is observed that some sections of the Indian society have remained financially excluded for religious reasons that preclude them from using banking products with an element of interest. Towards mainstreaming these excluded sections, it is proposed to explore the modalities of introducing interest-free banking products in India in consultation with the Government,” said RBI in Section VI (Regulation, Supervision and Financial Stability) of the report.
“The Reserve Bank continued its efforts towards fulfilling the financial inclusion agenda during the year. In this direction, the Committee on Medium-Term Path on Financial Inclusion suggested improvements in the governance system as a means of strengthening credit infrastructure and augmenting the government’s social cash transfers to the poor, propelling the economy on to a medium-term sustainable inclusion path,” said the report.
In the Section IV (Credit Delivery and Financial Inclusion) of the report, RBI has mentioned some important recommendations of its Committee on Medium-Term Path on Financial Inclusion which was headed by Deepak Mohanty. One of the recommendations is about opening interest-free window.
“An open specialised interest-free window with simple products like demand deposits, agency and participation securities, offering products based on cost-plus financing, deferred payment and deferred delivery contracts,” the committee had recommended and this recommendation has found place in the current Annual Report of RBI.
Other recommendations of the committee include:
1. Welfare scheme “Sukanya Shiksha” for the girl child with a view to linking education with banking habits; 2. A low-cost solution based on mobile technology for enhancing the effectiveness of last mile delivery as also to facilitate usage; 3. Phasing out of the interest subvention scheme and ploughing the amount into universal crop insurance.
“During 2015-16, the Reserve Bank intensified its efforts towards expanding formal banking facilities covering hitherto excluded sections of society…Measures such as introduction of Priority Sector Lending Certificates (PSLCs) and implementation of the recommendations of the Committee on Medium Term Path on Financial Inclusion are expected to provide further impetus to financial inclusion in the country,” said RBI.
Before the Narendra Modi government came to power at the centre in May 2014, there had been several attempts by RBI to open interest-free banking. On first Dec 2014, SBI Shariah Equity Fund was to be launched but it was deferred at the last minute and has not been introduced till date
Read More: SBI defers launch of Shariah Mutual Fund
