Islamic banking and the demand for its products have been growing rapidly around the world. Even the western countries are adopting it. Indian government has also been exploring the ways to bring it to India. Until now all Islamic banks had been operating as Non-Banking Financial Companies (NBFCs) and not as banks. Due to the massive population of Muslims in India, Islamic banking can be a reality in the near future.

Last month the Government of India asked the Reserve Bank of India (RBI) to explore ways to bring Islamic banking into India. It is believed that this would fit in well with the requirements of a large number of Indian Muslims. Until now all Islamic banks had been operating as Non-Banking Financing Companies, and not as banks. With this India too has also adapted to the new reality of the international financial scenario, i.e., Islamic banking.

Islamic banking is a banking activity that is based on the Syariah (Islamic law) principles which does not allow giving and receiving of interest and works on the principle profit sharing.

The concept of Islamic banking has been derived from a verse of the Holy Quran that says "Allah has allowed trade (al-bay') and prohibits riba (interest or usury)." (Al-Baqarah:275). Islamic banking is based on the principle of sharing of profit and loss from trading and commercial activities and the prohibition of loans (quard). Riba is considered to be unfair, exploitative and unproductive according to the Syariah principle.

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