New Delhi: Islamic economic groupings are asking the Congress-led United Progressive Alliance (UPA) government to allow alternative financial institutions that comply with the Shariah, or Islamic law, to operate in the country.

The Indo-Arab Economic Co-Operation Forum has asked Prime Minister Manmohan Singh to institutionalize an alternative financing system to attract investment from Muslims, according to K. Rahman Khan, deputy chairman of the Rajya Sabha.

Faith compliant: K. Rahman Khan says such banks could fund the operations of Wakf institutions. PIB

Islamic finance, based on the principles of Shariah, prohibits the payment or receipt of interest as well as investment in businesses that offer products or services that do not conform to Muslim religious beliefs, such as alcohol, casinos or pork.

Reserve Bank of India rules currently do not allow an Islamic bank to be licensed as a commercial bank.

Khan said Islamic financial institutions should be allowed as an option and would not replace traditional banks.

The forum, along with the Institute of Objective Studies, which focuses on Muslim community research, is organizing a two-day Indo-Arab Economic Summit starting 3 February in New Delhi to look into alternative options such as Shariah-compliant financial services.

The conference is expected to be attended by ministers, academicians and economic experts from both India and West Asia.

Khan, a senior Congress parliamentarian from Karnataka, said an official committee formed by the Prime Minister and headed by cabinet secretary K.M. Chandrasekhar has already submitted a report on the possibility of allowing such financial institutions to function.

Establishing such a framework would attract funds from West Asia, said forum president Mohammed Manzoor Alam.

“We feel that more investment should be brought in from the Arab countries to India because of the centuries-old relations we share with them and also because India has emerged as the safest and most secure destination for investments," Alam said.