Islamic Banking in India

This chapter explores the legal and regulatory dimensions of Islamic banking within the Indian financial system, which is secular and predominantly interest-based. It traces the historical development of banking in India, highlighting the absence of full-fledged Islamic banks despite the longstanding existence of interest-free credit societies. The analysis identifies key legal and regulatory barriers, including conflicts with provisions of the Banking Regulation Act and RBI regulations. Constitutional issues, particularly concerning equality and secularism, are discussed in light of judicial precedents. The chapter also underscores the potential of Islamic banking to enhance financial inclusion, especially among segments of the population underserved due to institutional or religious constraints. By examining the demographic, economic, and policy considerations, the chapter makes a case for legal reform to accommodate Islamic banking as a viable and inclusive component of India's financial landscape.