NEW DELHI, OCTOBER 1: Banking could get sensitive to religious beliefs soon. A special committee of the Reserve Bank of India (RBI), appointed on the directions of the Government of India, is studying ‘‘instruments of Islamic banking.’’

Islam prohibits interest, the fundamental instrument of modern banking. Offering financial products and services that conform to Islamic principles can lead to the unlocking of large financial capital that believers are unable to invest. In Kerala alone, thousands of crores earned in interest is kept in suspended accounts as believers do not claim it. ‘‘This money could be above Rs 40,000 crore,’’ says sociologist Imtiaz Ahmad, formerly of JNU.

Formed in July, the committee headed by Anand Sinha, Chief General Manager in charge (Banking Operations and Development), RBI, has not fixed a deadline yet. ‘‘The present committee is only studying the possibilities of instruments of Islamic banking. I cannot say if it will lead to changes in banking regulations,’’ an official said.

However, trends worldwide show the change. Banks such as HSBC, Standard Chartered etc have Islamic banking divisions started in recent years, and Indian banking regulators are perhaps catching up.

Instruments of Islamic banking are broadly based on the concept of sharing risk and profits rather than assured rates of interests.

• For instance, murabaha is a mechanism of financing trading. Here, the contract will have cost and profit components, profit will be shared by the trader and the financier.

• Mudaraba involves a sleeping partner who invests and the labour partner who does the work—the first gets his principal and share of profit; if the business fails his capital and the latter’s labour sinks.

• In musharaba, it is equivalent to a joint venture where banks get on board with equity and management partnership.

• In muqarada, or Islamic bonds, investors share the profits of the cumulative investments. And the bank collects a service charge, where profit sharing is not involved.

Jamaat-e Islami Hind, campaigning for Islamic banks for long, is excited about the RBI move. ‘‘There are many Muslims who are unwilling to deal with the existing banking system. And some are earning a lot of wealth too. If they have an opportunity to invest, on a profit-sharing basis, it is going to have a major impact on the economy,’’ says Siddique Hassan, secretary.

Abdur Raqeeb, Tamil Nadu state president of the Jamaat-e Islami, says interest-based banking can create havoc, as it happened in the case of farmers in AP. ‘‘Islamic banking is based more on sharing of responsibilities and is more compassionate,’’ he says, adding it could make credit available for the weaker sections.

But there is a lot of heated debate among ulemas on what is permissible and what’s not and some scholars say it is all a farce. ‘‘It is all very good to talk about but I am not convinced of its viability,’’ says Prof Imtiaz Ahmad.

However, it may not be the moral or religious arguments, but the economic ones that got the concept moving across the globe and now in India—assets controlled by Muslims is estimated to be $1.5 trillion and growing at 15 per cent a year. Banks began to eye this—Islamic bonds collected $30 billion in 2004, $20 billion already this year. Malaysia, headquarters of Islamic Financial Services Board (IFSB), has emerged the hub of Islamic banking. As many as 265 Islamic banks across 40 countries have assets of $262 billion.

Services offered by Islamic banks are a hit among non-Muslims too. More than 50 per cent business of HSBC’s Islamic banking division started last year in Malaysia is with non-Muslims!