Tanay Nandi, National Law University Jodhpur (NLUJ)
Satabdee Mohanty, Gujarat National Law University
July 2010
Abstract: "One of the fundamental principles governing Islamic financing is that the receipt of interest is prohibited. This is categorically stated in the Qur'an: "Those who devour Riba (interest) will not stand except as stands one whom the devil hath driven to madness by (his) touch" (II:275) In an investment environment, Riba is interpreted as any return on money that is predetermined in amount and therefore includes modern day interest-based financing. Islamic principles allow instead for the replacement of interest by a return that is dependent upon the profitability of the underlying investment.
In addition, Islamic principles permit the financing of sales by means of deferred payment at a premium to the spot price. Modern scholars have also encouraged asset-backed finance where the return to the financier is linked either to the provision of an asset to the client or to the acquisition of an asset from the client. In all of the above a clear linkage emerges between the earning of returns and the assumption of risk.
But, in India it is in the embryonic stage. However, there are some non-banking cooperative societies being operated across the India that follows the fundament finance law. But, still no Islamic banks as per Reserve Bank of India’s norms have been settled in India.
This paper starts off by examining the banking structures with an Islamic finance window in other countries such as UK, Malaysia, Hong Kong etc, and goes on to examine the causes for its negligible presence in India and ends with emphasizing the need for a greater participation from the bankers in India in support of Islamic Finance."
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