|Consider the following statements regarding Islamic Banking, which was recently in news:|
|1. The first Islamic bank in the world was founded in Egypt in 1963|
|2. Conceptually, an Islamic bank has an equity-based capital structure, composed of shareholders' equity and investment deposits based an profit and loss sharing.|
|3. Islamic banking prohibits earning of interest, or riba.|
|4. Islamic banking prohibits investment in activities considered haram, or sinful, according to sharia.|
A) 1 and 2 only
B) 1, 2 and 3 only
C) 1, 2, 3 and 4
D) 1, 3 and 4 only
Correct Answer: B
Solution :[b] [c] While riba is prohibited, equity-based returns on investment are not. The idea of Islamic banking was first mooted by Raghuram Rajan in 2008 when he was Chief Economic Advisor to the Ministry of Finance. But the Rajan report did not get the stamp of approval from the RBI Governor of the time, D Subbarao. Rejecting the recommendations, Subbarao conveyed to the government that Islamic Banking was not legally feasible in the current statutory and regulatory framework. He had also made his stand public. It will take an amendment of the Regulations Act and the RBI Act to introduce Islamic Banking. The Kerala government has recently got a go-ahead from the Reserve Bank of India to launch a financial institution following the principles of Islamic finance, however it was not a blanket permission. Cheraman Financial Services Limited (CFSL) will be floated by Kerala State Industrial Development Corporation to function as a non-banking finance company (NBFC).
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