India is a potentially large market for Islamic finance
where regulatory opposition (driven by political opposition) to Islamic finance
has kept the industry from developing. The
latest change in the Reserve Bank of India’s (RBI) statement about Islamic
banking is virtually indistinguishable from past statements, but other
developments behind the scenes indicate changes afoot.
The approval in 2012 of a branch of Turkey’s Asya Bank and
the indication of interest in opening a branch in India from Meezan Bank suggest
these institutions are becoming more confident in the possibility of Islamic
banking activities being allowed in India in the future. One way forward for the RBI would be to use a substance
over form approach to interpret the compliance of Islamic banks with India’s
banking laws.
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