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The term Nikāya Buddhism was coined by Masatoshi Nagatomi as a non-derogatory substitute for Hinayana, meaning the early Buddhist schools.Robert Thurman and Masatoshi Nagatomi of Harvard University: "'Nikaya Buddhism' is a coinage of Professor Masatoshi Nagatomi of Harvard University who suggested it to me as a usage for the eighteen schools of Indian Buddhism, to avoid the term 'Hinayana Buddhism,' which is found offensive by some members of the Theravada tradition." Examples of these groups are pre-sectarian Buddhism and the early Buddhist schools. Some scholars exclude pre-sectarian Buddhism when using the term. The term Theravada refers to Buddhist practices based on these early teachings, as preserved in the Pali Canon.
Avalokitavrata wrote of the Mahāsāṃghikas as using a "Great Āgama Piṭaka", which is then associated with Mahāyāna sūtras such as the Prajnaparamita and the Ten Stages Sutra. In the Caitika group of nikāyas, the Pūrvaśailas and the Aparaśailas each were known to have the in Prakrit. Bhāvaviveka also wrote of the Siddhārthikas using a Vidyādhāra Piṭaka, and the Pūrvaśailas and Aparaśailas both using a Bodhisattva Piṭaka, implying organized collections of Mahāyāna texts within these Mahāsāṃghika nikāyas.
The Theravada sect from Sri Lanka generally accepts the three vehicles, but categorizes these as three different types of bodhi, or enlightenment. The Theravada nikaya only uses the Pāli Canon, which has three piṭakas, and does not contain separate literature for bodhisattvas. Walpola Rahula writes of this, "At the end of a religious ceremony or an act of piety, the bhikkhu who gives benedictions, usually admonishes the congregation to make a resolution to attain Nirvana by realising one of the three Bodhis - Sravakabodhi, Pratyekabodhi or Samyaksambodhi - as they wish according to their capacity."
According to Robert Thurman, the term "Nikāya Buddhism" was coined by Masatoshi Nagatomi of Harvard University, as a way to avoid the usage of the term Hinayana. "Nikaya Buddhism" is thus an attempt to find a more neutral way of referring to Buddhists who follow one of the early Buddhist schools, and their practice.
The term Śrāvakayāna (literally, "hearer vehicle" or "disciples' vehicle") is also sometimes used for the same purpose. Other terms that have been used in similar senses include sectarian Buddhism or conservative Buddhism. Note that nikāya is also a term used in Theravāda Buddhism to refer to a subschool or subsect within Theravada.
Like the term Hinayana Buddhism, the term Nikāya Buddhism focuses on the presumed commonality between the schools, and not on the actual schools themselves. This commonality is thought to be found in a certain attitude. The term "Nikāya Buddhism" tries to shift the attention to the more neutral issue of attitude concerning the authenticity of scriptures.
A concise analysis by the Tibetan Buddhism, Reginald Ray, summarises the mistaken and confusing use of the term "Hīnayāna" to refer to any contemporary extant schools:
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