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ICIF welcomes the RBI Committee recommendations on interest free windows in existing banks.

RBI Committee on Medium term Path for Financial Inclusion headed by Shr. Deepak Mohanty has released its report and recommendations yesterday (28-12-2015) to increase financial inclusion in India.One of the major recommendations is permitting Interest Free Windows in existing conventional banks.The committee observed Commercial banks may be enabled to open specialized interest-free windows with simple products like demand deposits, agency and participation certificates on the liability side and cost-plus financing and deferred payment, deferred delivery contracts on the asset side.The report highlighted the central concept in interest-free banking and finance is justice, which is achieved mainly through the sharing of risk. Stakeholders are supposed to share profits and losses, and charging of interest is prohibited.In interest-free banking, the bank accepting deposits of money from the public is not engaged in lending as a purely financial activity but undertakes operations on the basis of profit and loss sharing (PLS) by engaging in equity financing and trade financing.The committee further observed that, notwithstanding the growing footprint of interest-free finance across the world, it has witnessed a lukewarm response in India and now it’s a time for change. The report also quoted Committee on Financial Sector Reforms (CFSR) report prepared by present RBI governor Dr Raghuram Rajan which also had recommended for interest-free banking products in India for the first time.Indian Centre for Islamic Finance (ICIF) welcomes the recommendations of the committee particularly opening of specialized interest free windows with simple products which will help to tackle the problem of financial exclusion of the marginalized and the minorities in the country once the recommendations are accepted and implemented.On September 16, 2015 RBI Committee headed by Mr. Deepak Mohanty invited H. Abdur Raqeeb, General Secretary Indian Centre for Islamic Finance-ICIF to interact with the committee at RBI Headquarters at Chennai along with other stakeholders and ICIF submitted a detailed memo to the committee which included the introduction of interest free windows in the banking for the financial inclusion of the minorities and the marginalized which was accepted by the committee. (Photo attached)ICIF is hopeful that RBI and Government will accept the recommendation and open the Interest free window in the banking sector very soon, which will help a larger section of the society, the access to financial products and services who are now keeping themselves away from the existing conventional interest based banking system due to their religious faith and beliefs. 

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