While India’s current legal framework on lending is interest-based, Islamic finance is founded on participatory finance that entails sharing of profit or loss. If the profit earned is less than expected cash flows, then a smaller profit pool is shared — a mechanism that can lower the cost of capital. The RBI governor recently said that laws have to be amended before one goes about allowing such products.
Advocates of Islamic finance think it’s no big deal and one need not go through the rigmarole of standing committees and parliamentary proceedings — if the central bank can use its powers to let commercial banks open a new window. Other countries, even a few not particularly sensitive to Islamic sensibilities, have gone ahead with it. That’s because they sensed that any leading financial centre should be open to various investment possibilities………………………………………..Full Article: Source