Islamic Finance a Tool to Achieve Financial Inclusion in India

Islamic Finance:

A Tool To Achieve

Financial Inclusion

in India.

Institute for Technology and Management

Islamic Finance:

A Tool To Achieve

Financial Inclusion

Institute for Technology and Management

Institute for Technology and Management

Islamic Finance: A Tool to Achieve Financial Inclusion in India

Capstone Project Report

Submitted

In the partial fulfillment of the degree of

Master of Business Administration

By

SUBHAAN TANVEER KAZI

PGDM (FINANCE) – 333

Under the Guidance of:

Prof. C.S. Adhikari

INSTITUTE FOR TECHNOLOGY AND MANAGEMENT

KHARGHAR, NAVI MUMBAI

2012-2014

Contents

Certificate by the Guide

Acknowledgments

Executive Summary

1. Introduction 2-9

1.1 Literature Review 4

1.2 Problem in Hand 7

1.3 Objective of the Study 8

1.4 Research Methodology 9

2. What is Islamic Finance? 10-16

2.1 Models of Islamic Finance 13

2.2 Islamic Finance v/s Conventional Finance 16

3. Status of Muslim Population in India 17-18

3.1 Access to Financial System 18

3.2 Reasons for Financial Exclusion 18

4. Prospects and Challenges 20

5. Recommendation and Conclusion 22

References

Appendix

CERTIFICATE BY THE GUIDE

This is to certify that the Capstone project report titled “Islamic Finance: A Tool to

Achieve Financial Inclusion in India”, is a bona fide work carried out by SUBHAAN

TANVEER KAZI ,a student of PGDM program 2012-14 batch of the Institute for

Technology & Management, Kharghar, Navi Mumbai under my guidance and direction.

Dr. C.S. Adhikari

Date: 07th

March, 2014

Place: Kalwa, Thane

ACKNOWLEDGEMENT

I take this opportunity with much pleasure to thank all the people who have helped me through

the course of my training towards producing this project report.

I am obliged to Dr. C.S. Adhikari for giving me this opportunity to work on this project. I am sure

this will have an impetus over my career which I am about to embark. I gratefully acknowledge

support from my faculty guide for guiding me through the project.

I also express my gratitude to all my colleagues and the esteemed respondents for helping me in

completing my project.

Lastly, I thank almighty, family and friends for their constant encouragement without which this

assignment would not be possible.

EXECUTIVE SUMMARY

At 180 million, Indian Muslims constitute the second largest Islamic population in the world after Indonesia. However Indian Muslims still remain a socio-economically backward community. The main culprit is the abstinence from financial system due to religious ideologies pertaining to money which prohibits transactions with entities working on the basis of ‘interest’. The Islamic finance industry has attracted the attention of policy makers and international donors as a possible channel through which the Indian economy can achieve financial inclusion, particularly among Muslim adults. Yet cross-country, demand-side data on actual usage and preference gaps in financial services between Muslims and non-Muslims have been scarce. This paper uses novel data to explore the use of and demand for formal financial services among self-identified Muslim adults. In a sample of 120 adults from diverse backgrounds, the analysis finds that Muslims are significantly less likely than non-Muslims to own a formal account or save at a formal financial institution. The data highlights various factors which are responsible for hindering Islamic Finance in India Other arguments have been made that Islamic banks and financial institutions offer methods of finance which are superior to Western interest-based counterparts because they are more equitable, stable and ethical, and offer less risk and volatility. Consequently in light of these propositions various Islamic Banking models are briefly explained and how the community is trying to promote social welfare through various avenues for distribution of wealth. Further, the paper includes the status of Muslim Population in India and the extent to which the community is financially excluded. It also includes various prospects and challenges involved with Shariah-compliant banking in India and how the authorities are trying to design the model through innovative ways and on scope of implementing various amendments in the Banking Regulation Act, 1949 to make it eligible for functioning. Finally, the suggestions and concluding part includes how the Muslim community will benefit immensely from this initiative. The non-Islamic community and corporate will have wider choice of financial products which would eventually contribute towards the goal of Financial Inclusion

1. Introduction Financial Dealings and Investments of a follower of Islam have to be in accordance with the laws of Shariah, which contains tenets and code of conduct on these topics. These tenets not only prohibit the concept of interest in any financial dealing, they also specify the type of contracts and nature of contracts, which are permissible. This led to the growth of a branch of finance, which could be as per the shariah laws, and it has come to be popularly known as Islamic finance. India has a negligible presence of Islamic finance despite a vast population of 180 million following Islam and, as such, it opens up an array of opportunities to both the investors and financial service providers. Although the concept of Islamic Finance can be traced backed to 8th Century in Muslim countries, modern Islamic Financial Services started in Egypt in 1963 by Ahmed El Najjar. In 1975, the Islamic Development Bank was set-up with the objective to provide funds to projects of its member countries. The first commercial Islamic bank, Dubai Islamic Bank opened its doors in 1975. Globally, Islamic Banking is operational in more than 75 countries excluding India. During the past decade, the assets of Islamic Banks have grown at an average rate of 15%. At the end of 2013, Assets-Under-Management (AUMs) in the Islamic finance industry has reached $1.8 trillion mark, growing at a compounded annual growth rate of 24.8 per cent per annum during the preceding four years.

Islamic Banking has a huge market potential and good prospect in India given the diverse Indian canvas and holds good for India from a development point of view. It presently faces many challenges that need to be addressed. Hence, the easiest way to introduce Islamic Financial system in the Indian Financial market is to start doing whatever is permissible within the extent laws and get noticed. The Government and the Regulator then, will have to step in, to regulate the working of Islamic Finance. In any case, it is not necessary to wait for the Government to put on platter all the Legislative reforms for financial transactions to be carried on, based on Shariah. Something similar needs to be done to increase awareness among the masses and create a demand for Islamic Financial Transactions. For the success of the Islamic Financial Institutions, there has to be a demand and the demand would be made only when people are aware of what is possible. Again, for the Government and the Regulator to feel the need for regulatory changes, there has to be enough Islamic Finance activity to justify introduction of Legislative changes.

The Writ petition in the Kerela High Court against the effort of establishing a Shariah compliant NBFC where the Government of Kerela was inclined to be a minor participant, shows that those interested in the introduction of Islamic Finance in India, will have to work for making their demand acceptable by bringing awareness and show that the benefit of the structure proposed by them is for all to avail the benefit more than that the conventional arrangement.

This requires a dedicated effort of a strong committee which can take an unbiased stand both from economic and secular perspective and recommend changes to be brought in ‘Banking Regulation Act’ for introduction of Islamic banking in India. These changes once done would help the authorities to extend their inclusion count to the Muslim minority population.

This paper, hence, is aimed to discuss how an Islamic Finance Model would help extending financial service to the minority populations in India.

Literature Review This section presents the discussion of the related literature and keeping in view the specific objectives of the study, the review of various studies have been presented relevant to the present undertaking. It also provides a brief summary on each reviewed article.

Muhammed Obaidullah (2008) provided valuable insights and guidelines on how microfinance may be provided in a Shariah compliant framework. The paper proposed poverty alleviation through micro—finance enterprises in conjunction to Shariah-compliant financial services. It drew valuable lessons from the case studies in terms of the two complimentary approaches to microenterprises development contributing to poverty alleviation. It also explained the Grameen model of group-based and graduated financing for developing livelihood enterprises along with a case study of Rural Development Scheme of Islami Bank, Bangladesh. It demonstrated how various organizations at various levels have strengthen each other and produce the desired results of enhancing financial inclusion, development of microenterprises and poverty alleviation. The study also highlighted some areas of concern and made suggestions to overcome them. Syed Zahid Ahmad (2008) seek justice for the Muslim Countrymen who are deprived of their religious need to transact interest free banking. The article mentioned Muslims as Minority Community in India. It highlighted the appointment of the Sachar Committee towards the investigation on Minority population in India. The writer tried to defense the Muslim community by proving The Sachar Committee unjust. He stated few lines which prove the denial of the demand for interest free banking by Muslim community. There are statistics which shows the exclusion of the Muslims from the Credit System and how it hampers the economic growth of the country. Finally the writer seeks for justice for the community and demands for Policy Initiatives and Special Credit Policy. Purnima S. Tripathi (2009) emphasized on the demand for Shariah-compliant banking that has gained support from a wide spectrum of political parties. The paper revealed the status of Muslim minority in the country and how they have a disproportionately small presence in banking activity. The paper also mentioned the outcome of the various committees which studied the socio-economic conditions of Muslims in India vis-a-vis other minority communities. The author tried to emphasize over real economic issues concerning the Muslim community that took place. The demand for Shariah-compliant banking products is gradually emerging and the government should take specific measures to introduce so that a vast section of Muslims who fail to access banking services for reasons of faith can avail themselves of these services and improve their lot.

Faisal Fasih traced the rationales for experimenting Islamic banking in India, which among other things promotes the constitutional mandates in a better manner and in a way, comparison is made between conventional banking and Islamic banking. The paper talks about the Indian economy and paradoxically the increase in the rate of poor people. The author mentions that the State must endeavour to establish an egalitarian society. However, most of the Indian citizens do not have access to credit. The present banking system is not conducive for protecting the interests of all sections of the population. The banking system of Islam, based on Islamic law, has been institutionalised in many parts of the world in the last couple of decades. Islamic banking has the potential to uplift the vulnerable groups such as farmer and Small and Medium Enterprises (SMEs) and can fosters inclusive economic growth. Besides, there is a strong argument that interest-free finance may attract investment from the Gulf region. Finally, it provides impetus to the socialist goal envisaged by the Constitution. It also talks about the studies done by Planning Commission Report of 2008, favouring Islamic banking in India. Apart from the objections on theoretical grounds and its working, it is not possible to establish such banking system under the present legal regime. However, it seems that the recent trend in India is to promote religious law for advancing the goal of secular law. In this context, the Kerala High Court has upheld the constitutional validity of Islamic finance in the case of Dr. Subramaniam Swamy vs. State of Kerala & Ors. (Decided on 3rd February, 2011) An attempt has been made to demonstrate the viability of Islamic banking

Zamir Iqbal and Abbas Mirakhor (2012) talks about Islam's perspective on financial inclusion and argued that the core principles of Islam lay great emphasis on social justice, inclusion and the sharing of resources between the haves and the haves not. He is referring to the impact of Financial Inclusion on a country’s economic growth and various other economic parameters. He mentioned the challenges involved with the Conventional Approach to Financial Inclusion. The paper further explained the concept in the Islamic perspective by quoting various verses from The Quran and the sayings of The Prophet Mohammad. Eventually, the author mentioned about the Instruments of Islamic finance that allows risk sharing and risk diversification through which individuals can mitigate their idiosyncratic risks. AHMED ROSTOM et.al (2012) identified gaps currently existing in Organization of Islamic Cooperation (OIC) countries on shariah compliant micro-finance and financing for small and medium enterprises and the state of traditional redistributive instruments. The paper concluded that Islam offers a rich set of instruments and unconventional approaches, which, if implemented in true spirit, can lead to reduced poverty and inequality in Muslim countries plagued by massive poverty. Therefore, policy makers in Muslim countries who are serious about enhancing access to finance or “financial inclusion” should exploit the potential of Islamic instruments to achieve this goal and focus on improving the regulatory and financial infrastructure to promote an enabling environment.

Ethica Institute of Islamic Finance and Infinity Consultants (2012) highlighted various statistics, contribution and achievement towards Islamic Finance in India. The authors focused on the prospects of Islamic Finance in India. They are supporting their claims by providing the statistics on the topic. There has been a comparison made of India with other countries with respect to Muslim population and the coverage of Islamic Finance. The article is concluded by highlighting the demand for Islamic Finance and its present status along with the measure to implement the same in conjunction to couple of cases. Asli Demirguc-Kunt et.al (2013) explored the use of and demand for formal financial services among self-identified Muslim adults. In a sample of more than 65,000 adults from 64 economies (excluding countries where less than 1 percent or more than 99 percent of the sample self-identified as Muslim), the analysis finds that Muslims are significantly less likely than non-Muslims to own a formal account or save at a formal financial institution after controlling for other individual- and country-level characteristics. But the analysis finds no evidence that Muslims are less likely than non-Muslims to report formal or informal borrowing. Finally, in an extended survey of adults in five North African and Middle Eastern countries with relatively nascent Islamic finance industries, the study finds little use of Shariah-compliant banking products. Fintrain Academy in its November (2013) issue covered various topics pertaining to Financial Inclusion. The issue talks about the present scenario by providing the statistics of the population having access to Financial System. It also covers various measures that took place to achieve Financial Inclusion. There is one exclusive article on Financial Literacy and its significance towards achievement of Financial Inclusion at a much faster pace. The issue also includes the initiatives taken up by RBI to foster Financial Inclusion with regards to the Financial Literacy material. The remainder talks about the Consumer Protection through Financial Inclusion with the help of Financial Education.

Mayada El-Zoghbi et.al (2013) explored the state of Islamic microfinance sector and identified key obstacles to its growth. Islamic microfinance is undoubtedly gaining momentum. But despite the doubling of Shariah-compliant microfinance providers since 2006, and the rapid increase in the number of their customers, Islamic microfinance is still dominated by a handful of service providers in a handful of countries offering primarily two products. There is considerable room for growth (even taking into account the smaller size of the potential pool of Islamic microfinance clients)—customers using Shariah-compliant products represent less than 1 percent of total microfinance outreach.

Several articles have been written on Islamic finance and Financial Inclusion in global perspective. A detailed study on India perspective would be a massive contribution in the area.

Problem in hand Over the last few years, the Muslims in India have been trying to restructure their lives on the basis of Islamic principles. They strongly feel that the political and economic dominance of the West, during past centuries, has deprived them of the divine guidance, especially in the socio-economic fields. In the economic field, it is the biggest challenge for such Muslims to reform their financial institutions to bring them in harmony with the dictates of Shari‘ah. In an environment where the entire financial system is based on interest, it is a formidable task to structure the financial institutions on an interest free basis. Lack of Shariah compliant investment opportunities in India has discouraged Muslims to invest, not only through banks but also through other available avenues. The community is striving for the revival of their Islamic identity to organise their collective life in accordance with the Islamic teachings. It can address the long drawn issue of ‘Financial Inclusion’ which would eventually result in the economic development of the country. India has strong ability to emerge as a potential market for Islamic banking, provided there is supportive political environment and increased awareness among people in India as a whole. Presently, there is no Islamic bank in India except few Shariah compliant funds and several other Islamic financial institutions and credit cooperative societies. India is in prime need of an Islamic bank because as per Sachar committee report, about 80% Indian Muslims are financially excluded due to interest based deposit and credit from conventional banks. The long held issue of financial inclusion can be taken care by introducing Islamic Banking. Majority of the Muslims are so poor that they are not targeted by the Commercial Banks and whose savings lie idle at their homes. Muslims in India generally lack creditworthiness primarily because they form part of the ghettos or negative areas, which were drawn back and are still in vogue. The Reserve Bank of India (RBI)’s much-awaited move allowing Islamic finance to be practiced in the republic has been well-received by the global Islamic finance industry. Recently, RBI has allowed Cheraman Financial Services, a firm in Kerala to operate as a non-banking financial company (NBFC) that follows Islamic principles - a small step towards developing shariah-compliant finance in the country. Although authorized under the Non-Banking Financial Companies (NBFCs) provisions of the Reserve Bank of India Act 1934, financial transactions are nonetheless allowed to be made in accordance with Shariah principles.

The appointment of the much-celebrated ‘rock star’ economist who predicted the global financial crisis, Dr. Raghuram Rajan, as the new governor of RBI in September, 2013 is expected to breathe a new life in efforts to advance Islamic finance in the republic.

Objectives:

This study aims to achieve the following objectives:

1. To emphasize on the benefits of the Islamic Instruments and draw a comparison between Islamic and conventional banking system.

2. To examine the present status of Muslims having access to the Financial System and critically analyse the reasons for Financial Exclusion of Muslim Population

3. To provide valuable insight and guidelines on how Islamic Finance will help India achieve financial inclusion with the help of Shariah compliant framework.

Data & Methodology

This paper draws an individual-level database comprised of survey data collected over the 2013-14 calendar year. The database covers more than 120 adults. The target population was the students, working-class individuals and lower middle-class Muslim population of age 18 and above. Surveys were conducted in the major languages accepted by the class of people. A simple random sampling method is used in this thesis. It is assumed that the selected sample provided useful insights for an intellectual enquiry of this type. This selection is motivated by the following reasons: First, the availability of relevant financial data necessary to substantiate any conclusions about to be made. Secondly, they comprised an appropriate sample that can help us determine the benefits associated to introduction of Shariah-compliant products in financial institutions. A simple Questionnaire was used to carry out the Survey. The survey was conducted online and manual handouts circulations. The target audiences were divided into two groups.

1. Educated Individual 2. Lower and Middle Class Muslim Population

In order to achieve the objective of developing an understanding about people’s perceptions towards Financial Inclusion through Islamic Finance, a well structured questionnaire was designed. Responses were collected by taking into consideration the questions regarding Awareness of Islamic Finance and Financial Inclusion, the factors hindering Islamic Finance Model in the Country and the potential growth of the model in conjunction to the Muslim population. The survey was conducted among educated individuals and Lower Middle Class Muslims Families. The findings are based on a sample of 120 respondents in Maharashtra. The response rate was 95% as the individuals were contacted personally. The data was eventually collated in an Excel Sheet and the findings are displayed in graphical representation.

It should be noted that this paper does not intend to build a new theory, but rather, to investigate the research questions based on available secondary data with a view to contribute to available literature. This is mainly due to difficulty in obtaining primary data for the project.

2. What Is Islamic Finance?

Islamic finance is based on four main principles, which are all derived from the Quran and Sunna. The first dictates that paying interest (i.e. any predetermined payment over and above the principal) is prohibited. As a result, Islamic banks have to use contracts that create exposure to the real sector and must thus ensure efficient risk management. The second principle involves the profit and loss sharing concept. Parties to a financial transaction must share both the risks and the rewards that may be attached to it; in this way, excessive losses and profits are minimised. The third principle is the prohibition of uncertainty or speculation. Uncertainty in contractual terms and conditions is forbidden. However, risk-taking is allowed when all terms and conditions are clearly stipulated and known to all parties. The fourth principle demands the use of asset-backing. Each financial transaction must relate to a tangible and/or identifiable underlying asset, ensuring that Islamic banks remain connected to the real economy. Islamic Banking is a system of banking based on Islamic law (known as Shariah). Shariah forbids the payment or acceptance of interest (known as riba or usury) for the well being of the society. Interest from the conventional bank and economic arguments can lead to the divide between the rich and poor, and inflation which can create financial and economic instabilities. Just like conventional financial systems, Islamic finance features banks, capital markets, fund managers, investment firms, and insurance companies. However, these entities are governed both by Islamic law and the finance industry rules and regulations that apply to their conventional counterparts. Although the Islamic finance industry itself is quite young, Islamic theories of economics have existed for more than a millennium; by the mid-12th century, in fact, many Muslims scholars had presented key concepts of Islamic economics that are still relevant today. Nowadays Islamic finance has become an important part of the international financial system and is, certainly, one of its fastest growing components over the last decades. In the wake of the financial crisis, there has been a renewed debate on the role that Islamic finance can play in the stabilization of our financial system, given its strong ethical principles and religious foundations.

But political and social turmoil put the brakes on Islamic finance for a very long time; only in the 20th century did Muslim scholars and academics seriously begin to revisit these topics and, in doing so, set the stage for the modern Islamic finance industry to emerge in the 1970s.Islamic economics is based on core concepts of balance, which helps ensure that the motives and objectives driving the Islamic finance industry are beneficial to society. It balances material pursuits and spiritual needs thereby balancing individual and social needs. A core concept of Islam is that Allah is the owner of all wealth in the world, and humans are merely its trustees. Therefore, humans need to manage wealth according to Allah’s commands, which promote justice and prohibit certain activities. At the same time, Muslims have the right to enjoy whatever wealth they acquire and spend in shariah-compliant ways; they don’t need to feel shame about being wealthy as long as their behavior aligns with Islam.

A Muslim believes that Islam doesn’t restrict economic activity but instead directs it toward responsible activity that benefits other people, protects the earth, and honors Allah. In other words, Islam allows for a free-market economy where supply and demand are decided in the market and not dictated by a government. But at the same time, Islam directs the function of the market mechanism by imposing specific laws and ethics. A key purpose for imposing these laws and ethics is to promote social justice; Islam and social justice are inseparable. Therefore, social justice is a key concept of the Islamic finance industry.

Islam tries to achieve social justice in the economy in many ways:

• Promoting adherence to Islam • Requiring Zakat (taxing the property of people who acquire wealth and

distributing that tax to people in need) • Prohibiting usury (interest) • Encouraging shared risk

Based on the core concepts of Islamic economics, Islamic finance institutions adhere to certain principles that distinguish them from conventional finance:

• Prohibiting interest (riba) • Steering clear of uncertainty-based transactions (gharar) • Avoiding gambling (maysir or qimar) • Avoiding investment in prohibited industries (Tobacco, Liquor, Pornography etc.)

Additional Features:

• Islamic banking has grown out from the conventional banking only in the year 1971. However, still at infancy stage, its growth is tremendous and impressive.

• It can induce the habit of savings among people and create the financial insertion required in India.

• Islamic banking can help in eradicating poverty by lowering down the economic disparities there is no interest obligation on the part of the unfortunate borrowers.

• Islamic banks offer financial instruments that are not only profitable but also reasonable and are ethically fair.

• Islamic banks would give advantage to entrepreneurs who have profitable proposals but lack collateral.

• Islamic banking draws finances from both Muslims and non-Muslims alike. More than 40% of the investors and 60% borrowers in Malaysian Islamic banks are non-Muslims. One-fifth customers of Islamic banks of Britain are non-Muslims.

Islamic Finance in the Global Financial System

Islamic finance has developed significantly over the years to become a noticeable part of the international financial system. The value of Islamic financial assets worldwide increased from USD 150 billion in the mid-1990s to about USD 1.8 trillion by end 2013, led by the Islamic banking sector and the global sukuk market. And, in 2014, it is estimated to reach USD 2 trillion. Despite the formidable growth of the last few years, Islamic finance still accounts for a relatively small share of global finance, and remains mostly localised in selected areas of the world, particularly in the Middle East and Far Eastern Asia. The growth of the Islamic finance industry has mainly been driven by the following factors:

� Abundant liquidity flows from the recycling of petrodollars generated by high oil prices over the years.

� The active role played by some jurisdictions around the world to promote the development of Islamic financial markets in their respective countries.

� A growing Muslim population and the related higher demand for Shariah-compliant products.

� An increased perception that Islamic finance can support efforts to promote global financial stability.

� The fact those multilateral organizations (e.g. the IMF) as well as a number of central banks have embarked on extensive studies/research initiatives to examine prospects for Islamic finance within their respective economic blocs/regions.

Models of Islamic finance Some common financial instruments currently being utilized in Islamic finance in various forms are as follows. 1. Murabaha This is effectively cost-plus financing, as used for trade and asset finance, allowing deferred payment by customers rather than lending money as in conventional loan. The bank purchases the requested commodity (thereby taking it on risk) and sells it to the customer at the agreed mark-up price. In recent times, murabaha contracts have been the instrument of choice for many financial products, be it trade and asset finance or the provision of working capital facilities. Istisna’a: Along with murabaha products, it is one of two types of finance which allows the sale of a commodity prior to production. Istisna’a contracts are clearly aimed at long-term projects, and are frequently used to finance the construction of real estate and turnkey projects. 2. Ijara: This is a quasi-debt instrument, essentially equivalent to leasing. Often used in the context of home purchasing, most aspects of an ijara are the same as those of conventional leasing, whereby the investor (lessor) purchases and leases the underlying asset to the prospective borrower (lessee) for a specified rent and term. Ijara are frequently used to finance the acquisition of real estate and equipment, although they have also been utilised to affect leveraged buy-outs in private equity transactions. 3. Musharakah: Musharakah is a joint venture arrangement, through an equity participation contract. Ownership is distributed according to each partner’s share in the financing, and profit and loss is shared by the partners. Such contracts are often used in connection with large project finance and private equity funds. Despite it being a preferred option by many Islamic scholars, musharakah captures only a tiny portion of all Islamic finance. Recent times have witnessed a shift in emphasis away from ijara towards diminishing musharakah (DM) as a mode of financing Islamic mortgages. Many of the major Islamic mortgage providers have either already switched to DM or are planning to do so imminently. DM is a hybrid financing technique involving both ijara and musharakah. It appeals to Islamic investors because it is based on the fundamental principle of sharing risk. The attraction for financiers is twofold, in that it can incorporate a variable rate of return and has a credit profile that would be acceptable to most conventional institutions. 4. Mudarabah: This is essentially an investment fund where one party provides the entire capital, and the other party provides the management (usually the bank, but can be the reverse). Profit sharing is agreed up-front, although the loss is borne by the provider of the funds alone.

5. Sukuk This is an investment certificate (bond) that represents a proportionate interest in a well-defined pool of assets that yield income and capital returns. Usually setup through the conventional securitisation process, with a special purpose vehicle acquiring the assets, the returns from the assets are passed to sukuk holders (investors). Nowadays popular asset classes have included real estate. This method has been a popular way for many governments to raise funds for infrastructure, and accounts for the largest portion of Islamic finance. Distribution of Wealth The wealth produced in a society must be distributed in a just and fair manner, so that it may not be concentrated in the hands of a few people. The Holy Quran says: ' so that it may not circulate only among the rich among you' (Holy Quran 59:7) 20 richest Indians earn as much as what 30 crores poorest people are earning, writes Bimal Jalan, former RBI Governor. While GDP growth is nearly 5%, Aam Aadmi, the 860 million marginalised Indians earn only Rs 20 per day. The system has created two sections in our societies: super rich and super poor. The study by specialists at Oxford University based on an innovative multidimensional poverty index" or MPI, more than 410 million people live in poverty in the Indian states. The study's conclusions reinforce claims that distribution of wealth generated by India's rapid economic growth (10 percent in one year, recently) is deeply unequal. Prime Minister Dr. Manmohan Singh’s repeated statement that he wants to see 'inclusive' development. Hence, Islamic finance set values and principles that may remove this disparity and provide justice and equity for all. 1. Zakah Zakah is supposed to be a major instrument for social security, eradicating poverty, curbing excessive economic disparities and stimulating economic activity by transferring substantial purchasing power to the have-nots. Collective system of zakah and its proper distribution has to be strengthened as it was prevalent in the days of the prophet and up to the seventh century hijra, till the invasion of the Tatars. 2. Waqf The institution of waqf provides a foundation set up by keeping a property in perpetual existence and making its income available for specified beneficiaries which plays an important social and economic role. The waqf properties have traditionally financed expenditure on mosques, schools, research, hospitals, social services, etc. Today it can support microfinance institutions that can provide interest free loans to the needy and marginalised sections of the society.

3. Insurance The conventional insurance system is based on gharar (speculation) and maysar (gambling) and the investments are made on unethical businesses, a new system has been evolved called Takaful based on Islamic principles. 4. Microfinance Based on the successful experiments of Prof. Yunus of Bangladesh Grameen Banks, similar institutions are the need of the hour. Although India has witnessed tremendous growth in Microfinance industry by Self Help Group (SHG) and other financial products, finance collected and guidance provided to earn the decent livelihood to the needy has to be evolved. Finance provided has to be interest free and the development should focus on the family instead of only women folk. 5. Islamic Banks Almost non-existent 30 years ago, modern Islamic finance has risen to become a 2 trillion dollar industry. The sector, though small in global terms, appears to have held up well in the crisis, with the Asian Development Bank putting annual growth at more than 15% over the next 5-10 years. Long focused on a potential global market of 1.5 billion Muslims, Islamic banking is now drawing attention from players the world over. Nowadays, major establishments such as Al Rajhi Bank of Saudi Arabia, the Kuwait Finance House, and Malaysia's Islamic bank may compete with western financial institutions such as Barclays, HSBC and Deutsche Bank. Several banks have set up separate Islamic financial services departments in their home markets as well. In the UK, the Financial Services Authority has introduced regulatory standards for Islamic financial products and has a separate department dealing with Islamic financial institutions. Moreover, non-Muslims make up as much as half of Islamic bank customers in some cases. Similar developments have taken place in Singapore, Japan, Hong Kong and France. If London, Singapore, Hong Kong, Tokyo and Paris can become hub and house of Islamic finance and banking, why not Mumbai and Kochin? Committee on Financial Sector Reforms (CFSR) of the Planning Commission of India headed by Dr. Raghuram Rajan has recommended interest free finance in the main banking sector of the country for inclusive growth with innovation. Recently Dr. MS Swaminathan, father of green revolution has suggested Islamic Banking with zero interest to be the solution to the crisis of the farmers’ suicide deaths in Vidharba and even Vatican has offered Islamic finance principles to Western banks as a solution for worldwide economic crisis.

Difference between Conventional and Islamic banking

Conventional Banking Islamic Banking

• Money is a commodity besides medium of exchange and store of value. Therefore, it can be sold at a price higher than its face value and it can also be rented out.

• Money is not a commodity though it is

used as a medium of exchange and store of value. Therefore, it cannot be sold at a price higher than its face value or rented out.

• Time value is the basis for charging interest on capital.

• Profit on trade of goods or charging

on providing service is the basis for earning profit.

• Interest is charged even in case the organization suffers losses by using bank’s funds. Therefore, it is not based on profit and loss sharing.

• Islamic bank operates on the basis of

profit and loss sharing. In case, the businessman has suffered losses, the bank will share these losses based on the mode of finance used (Mudarabah, Musharakah).

• While disbursing cash finance, running finance or working capital finance, no agreement for exchange of goods & services is made.

• The execution of agreements for the exchange of goods & services is a must, while disbursing funds under Murabaha, Salam & Istisna contracts.

• Conventional banks use money as a commodity which leads to inflation.

• Islamic banking tends to create link

with the real sectors of the economic system by using trade related activities. Since, the money is linked with the real assets therefore it contributes directly in the economic development.

3. Status of Muslim Population

India is the 2nd largest Muslim populated country in the world

million Muslims who spend on average, only 32.7 Rupees per day.

population is projected to increase from 177.3 million in 2010 to

In spite of various programs implemented by the Indian Government for the Muslim

Community, the community lags behind the majority in many socio

dimensions such as land ownership, poverty, income growth, unemployment etc. T

community is trapped under 3 major socio

and ignorance.

The total revenue of Muslim owned businesses generates 50000 crores in the

economy. In the absence of Islamic Banking in India, they use the conventi

and finance for their business needs. However, recently corporate have st

cognizance of Islamic Banking and Financial products.

One of the major obstacles faced by Muslims entrepreneurs in specific and the Muslim

Community in general is the abili

which depicts the proportion of banks accounts owned by Muslims and the credit

disbursements of Muslims.

Important Points:

• In India, almost half the country is • Only 55 per cent of the population has deposit accounts and 9 per cent have

credit accounts with banks.• India has the highest number of households (145 million) excluded from Banking.• There is only one bank branch per 14,000 people.• 6 lakh villages in India, rural branches of SCBs including RRBs number 33,495.• Only a little less than 20% of the population has any kind of life insurance and

9.6% of the population has non• Just 18 per cent have debit car

0%

20%

lim Population

India is the 2nd largest Muslim populated country in the world after Indonesia

million Muslims who spend on average, only 32.7 Rupees per day. The Indian Muslim

is projected to increase from 177.3 million in 2010 to 236.2 million in 2030.

In spite of various programs implemented by the Indian Government for the Muslim

Community, the community lags behind the majority in many socio

dimensions such as land ownership, poverty, income growth, unemployment etc. T

community is trapped under 3 major socio-economic factors which are poverty, illiteracy

he total revenue of Muslim owned businesses generates 50000 crores in the

economy. In the absence of Islamic Banking in India, they use the conventi

and finance for their business needs. However, recently corporate have st

cognizance of Islamic Banking and Financial products.

One of the major obstacles faced by Muslims entrepreneurs in specific and the Muslim

Community in general is the ability to obtain credit. This is evident from the RBI report

which depicts the proportion of banks accounts owned by Muslims and the credit

In India, almost half the country is unbanked. Only 55 per cent of the population has deposit accounts and 9 per cent have credit accounts with banks. India has the highest number of households (145 million) excluded from Banking.

only one bank branch per 14,000 people. es in India, rural branches of SCBs including RRBs number 33,495.

Only a little less than 20% of the population has any kind of life insurance and 9.6% of the population has non‐life insurance coverage.

debit cards and less than 2 per cent having credit cards.

0%

20%

Muslim as % of

total

Bank Accounts &

Credit Disbursment

13% 13%9% 5%

Population Access to Finance

after Indonesia with ~200

The Indian Muslim

236.2 million in 2030.

In spite of various programs implemented by the Indian Government for the Muslim

Community, the community lags behind the majority in many socio-economic

dimensions such as land ownership, poverty, income growth, unemployment etc. The

economic factors which are poverty, illiteracy

he total revenue of Muslim owned businesses generates 50000 crores in the

economy. In the absence of Islamic Banking in India, they use the conventional banking

and finance for their business needs. However, recently corporate have started taking

One of the major obstacles faced by Muslims entrepreneurs in specific and the Muslim

y to obtain credit. This is evident from the RBI report

which depicts the proportion of banks accounts owned by Muslims and the credit

Only 55 per cent of the population has deposit accounts and 9 per cent have

India has the highest number of households (145 million) excluded from Banking.

es in India, rural branches of SCBs including RRBs number 33,495. Only a little less than 20% of the population has any kind of life insurance and

credit cards.

Source: RBI

In the World Bank Findex Survey, 2012 it was pointed out that only 35% of Indian adults had access to a formal bank account and 8% borrowed formally during 2011-12. Only 2% adults used an account to receive money from a family member living in another area and 4% used an account to receive from Government. As per the Census 2011:

1. Over 2/3rds of urban households (67%) are getting banking services. 2. Only 54% of rural households have access to banking services. 3. Only about 5% of the nearly six lakh villages in the country have bank branches. 4. There are as many as 296 under-banked districts in the country.

Incidentally, 100% financial inclusion is not possible or achievable without ensuring ‘Financial Literacy’. Financial Literacy is nothing but the knowledge of effectively managing one’s own money. The old saying “A penny saved is a penny earned’ has today changed to, ‘A penny saved and invested is two pennies earned.” A person who is financially literate can spend well and still have more surplus than a person who is financially illiterate and that is the power of financial literacy. The below data represented below shows that 41% of the respondents support Interest/Usury as a factor that keeps the Muslim Population away from Financial System. 54% of the respondents claim Lack of Experts hindering the growth of Islamic Finance Model in India.

54%

10%

14%

22%

Hinderance to Islamic Model

Lack of Experts

Violates Banking Regulation Act

Avoid Inflow of Black Money

Don’t Know

48%

44%

8%

Religion

Muslims Hindus Christian

31%

41%

23%

5%

Factors that keep the Muslims away from

Financial System

Poverty Interest/Usury Illiteracy All

Financial exclusion and poverty are nonfinancial exclusion is a self-reinforcing force in which there are certain factors that are related in circular way so as to result in continuation of poverty and under developin India. This examines the demand and supply factors influencing the accessibility of financial services by lower middle class. Demand related factors are income, occupation, interest rate, age, education, dependents in the family, awareness and poverty affect the demand for credit, which can dirThe production also falls which reduces the disposable income of borrowers. This in turn creates a lack of educational opportunities and a dearth of awareness, which causes a barrier in accessing institutional credit. This is the trap from which it is difficult to come out and it is named as the vicious circle of financial exclusion.

Low Income

Lack of Educational

Facility

Lack of Awareness

exclusion and poverty are non-mutually exclusive forces. The vicious circle of reinforcing force in which there are certain factors that are

related in circular way so as to result in continuation of poverty and under developexamines the demand and supply factors influencing the accessibility of

financial services by lower middle class. Demand related factors are income, occupation, interest rate, age, education, dependents in the family, awareness and

rty affect the demand for credit, which can directly influence accessibility forThe production also falls which reduces the disposable income of borrowers. This in turn creates a lack of educational opportunities and a dearth of awareness, which auses a barrier in accessing institutional credit. This is the trap from which it is difficult to come out and it is named as the vicious circle of financial exclusion.

Low Demand for Credit

More Burden of

Interst Rates

Low Production

Low Income

Lack of Awareness

mutually exclusive forces. The vicious circle of reinforcing force in which there are certain factors that are

related in circular way so as to result in continuation of poverty and under development examines the demand and supply factors influencing the accessibility of

financial services by lower middle class. Demand related factors are income, occupation, interest rate, age, education, dependents in the family, awareness and

ectly influence accessibility for credit. The production also falls which reduces the disposable income of borrowers. This in turn creates a lack of educational opportunities and a dearth of awareness, which auses a barrier in accessing institutional credit. This is the trap from which it is difficult

4. Prospects and Benefits of Islamic Banking The prospects of Islamic banking in India are bright; with reference to demographic structures and the benefit of Islamic banking in itself. Flow of Funds The absence of Islamic banking is an obstacle to the flow of substantial funds into the market. According to Shariq Nisar, Director, TASIS, there is approximately INR 50 billion unclaimed interest in Kerala state alone. People generally choose to invest their money in gold or jewellery, which is regarded as worst kind of investment. There are at least 300 Islamic societies which accept deposits and lend money, but can’t make a business of it because of the Shariah prohibition of interest. And these Islamic societies cannot convert themselves into bank because the regulation restricts interest free banking. Some of these societies have collected more than INR 2 billion in interest-free deposits, but they do not have any opportunity to invest the fund (Sampath, 2008). Evading Petro-Dollar Loss Islamic banking is expected to benefit Indian government through diplomatic rewards in financial dealings with Muslim dominated nations. Particularly, trillion dollars from Gulf Cooperation Council (GCC) countries can be attracted. The GCC countries interest in venture capitalism and real estate financing can help towards infrastructure development in India. Increase in Sharia-Compliant Companies According to Ashraf Mohamedy, MD, Idafa investments, there are almost 80% of the Indian companies are Shariah compliant to the extent their business in India is concern. In the year 2009, SEBI has given licenses for Shariah compliant portfolio products. In 2011, National Stock Exchange (NSE) with Ratings Intelligence Partners (a London Kuwait-based global Islamic consulting company) has launched NSE Shariah Index S&P CNX 500 Shariah. Whereas, in the same year Bombay Stock Exchange (BSE) with Taqwaa Advisory and Shariah Investment Solutions (TASIS) has launched a Shariah Index known as BSE TASIS Shariah 50. According to Shariq Nisar, the Director of TASIS, BSE has the highest number of Shariah compliant companies across the globe. Project Financing for Economic growth The financing in Islamic banking concerns more with the viability of projects instead of credit worthiness of borrowers. In other words, Islamic banking is financing projects which link to the economic growth. According to Siddiqi and Khan (2003) interest based loans give advantage to credit-worthy individuals and do not necessarily finance profitable projects. Conventional banking system priorities credit worthiness of the client rather than expected profitability of the project.

At times promising projects might fail to receive finance if it comes from one who does not have a guarantee to support the project. The emphasis on equity and profit sharing which is the key aspect to determine whether a project is worth financing is a valuable asset of implementing the Islamic banking in India. Furthermore, the inadequate capital investment in unorganized sector can receive a boost through equity finance promoted by Islamic banking. This sector normally lacks collateral, hence are not eligible for debt financing. Islamic banking can overcome this situation and thus can lead to the next revolution in agriculture and unorganized sector. Safeguard against Economic Decline As per the global downturn scenario, Islamic banks are a solution to the economic decline. One of the important factor which leads to international financial crisis are innovative financial products, transactions and short selling. Islamic banks are shielded from interest based transactions because Shariah prohibits interest as well as short selling. Reduction in Income Disparity According to United Nations Development Programme (UNDP) human development report, India needs to draw attention towards increasing income disparity as they reported it to be 36.8, quite close to world’s average and with a rising trend (UNDP, 2011). This wide income disparity in its severe ravenous from has lead to widen the divide in society. Muslims who follow Shariah do not avail credits and remain isolated. Hence, Islamic banking would assist in the upliftment and the disparity reduction. Increased participation in Stock Market It is expected that the introduction of Islamic banking and development of Islamic funds would lead to addition of new stock trading accounts, thereby giving a rise in the stock market. In line with Dow Jones' Islamic index, similar Indian Islamic indexes like BSE TASIS Shariah 50 and S&P CNX 500 Shariah will attract funds from Muslims wishing for Shariah compliant investments. Islamic window for Business Diversity A growing number of commercial banks around the globe are considering the prospects of offering Islamic financial products. Banks are not only planning to offer services to a growing Muslim population, but also motivated to tap the growing global investors attracted to Shariah-compliant products. Considering the idea, Indian banks may want to explore the potential of this market, and hence may be interested in launching a pilot project. There have been arguments that banking based on religion has limitations to spread in a secular country like India; which is not true.

Britain, with less than 2 million Muslims population, already has 6 Islamic banks which are fully Shariah compliant. According to Ali Ravalia, associate, UK Financial Services Authority, people have started to realize that Islamic banks are not a threat but an opportunity for economic growth. In addition to the large and available Muslim population, Islamic banking is currently beginning to catch the attention of non-Muslim customers, who are interested in alternative way of banking. According to Fiorina (2008) Islamic banking will be benefited from the new customer’s interest and grow even more quickly than it recently did. In addition, corporate giants like Tesco (UK) and Toyota (Japan) have used Islamic financial instruments to fulfil capital requirements (DiVanna and Sreih, 2009). This proves that not only individuals, but also corporate giants have showed confidence in Shariah compliant financial instruments. Challenges ahead of Islamic Banking Regulatory Framework Banking Regulation Act 1949, RBI Act 1934, and Cooperative Societies Act and Negotiable Instruments Act 1961. Many sections of the said acts are in opposition to the basic tenets of Islamic banking. For instance, payment of interest on deposits is mandatory as per section 21 of the Banking Regulation Act; sections 5(b) and 5(c); specifically prohibit investments based on profit and loss sharing; and section 8 of the Banking Regulation Act 1949, which reads “No banking company shall directly or indirectly deal in buying or selling or bartering of goods.” Directly contradicts the Murabaha concept of Islamic banking which allows banks to enter into sale and purchase agreements. The interest earned on fixed deposits is subject to TDS as per the Income Tax Act 1961, whereas the profit on Islamic banking deposits is treated differently. Infrastructure Support Commercial banks borrow from other banks or the RBI to meet their short term funding requirements, but Islamic banks can’t do so because it involves interest. Islamic banks are required to closely monitor their investments in various businesses, as well as ensure that the investee firms are managed properly. This calls for expensive supervisory infrastructure. Dearth of Islamic Professionals There is a serious dearth of Islamic banking experts and trained personnel in India. Although there are a few training institutes, they are unable to compensate for the shortage of experienced Islamic banking professionals. Lack of Awareness There is a lack of awareness about Islamic Banking. Most people mistakenly believe that Islamic Finance is not a viable tool for Indian economy. Also the industry lacks experts to work towards enhancement of the existing models.

SUGGESTION Indian government should allow conventional banks to open an Islamic banking window for early development of Islamic banking system. Islamic window is a facility within a conventional bank through which customers can make use of Shariah compliant products (Kamaruddin et al., 2008). The concept of Islamic banking window has been successful in Malaysia, Pakistan and Hong Kong. Currently, India has strong setup with 88 SCB and these banks have a joint network of over 69,160 branches. According to Khan and Ahmad (2003) to function in globalised economy, banks have to meet international standards. Islamic banks have to learn a lot from conventional banks, especially on their managerial skills, financing tools and transparency standards. The conventional banks will not only provide infrastructure to Islamic banking window but will also provide the initial experience needed to establish the same. Considering large network of conventional banks in India, India is suggested to start Islamic banking by opening Islamic window to reach the prospective customers. Opening an Islamic window will require the bank to establish the suitable measures to avoid the mixing of Islamic and conventional funds. Once a conventional bank has run an Islamic window and gathered a substantial clientele base for its Shariah compliant products, it may choose to launch a full-fledged Islamic bank. Indian government may consider Malaysian Islamic window as a role model. The first Malaysian Islamic bank was Bank Islam Malaysia Berhad established in 1983 did not get anticipated success. Therefore, in 1993 the government allowed conventional banks to offer Islamic banking services through Islamic window assuming it will be more effective and efficient in increasing the number of Islamic financial institutions and lowering cost within short span. The effectiveness of Islamic window is proven as it has leaded to an improved performance and enhanced efficiency of banking industry (Mokhtar et al., 2006). In addition to that, for the growth of the Islamic banking in India, proper amendments in the different acts and regulations should be made to accommodate Islamic banking. This is to ensure that Islamic window division can work according to Shariah principles within the existing setup. So that, funds at the disposal of such mixed banks cannot be pulled from Shariah prohibited earnings.

CONCLUSION India has a huge market potential for Islamic banking. The growth of Islamic banking in Southeast Asian countries like Malaysia and Singapore shows it as a viable option for India. The entry of Islamic banks is positive in terms of growth, product innovations and financial inclusion and may encourage the adoption of best practices among the present banks. Islamic banking would open new doors for the Muslim communities. More and more Muslims would seek credit from these banks; invest in business activities and thus help in upliftment of the community as a whole. This will help the Indian Government in achieving financial inclusion for all.

� Islamic banking can help in eradicating poverty by lowering down the economic disparities as there is no interest obligation on the part of the unfortunate borrowers.

� It can induce the habit of savings among people and create the financial insertion required in India. Islamic banking draws finances from both Muslims and non-Muslims alike.

� Islamic banks offer financial instruments that are not only profitable but also reasonable and are ethically fair.

� Islamic banks would give advantage to entrepreneurs who have profitable proposals but lack collateral.

For these, Indian government should look for the opportunities and take a stand in introducing Islamic banking. However, there are challenges to be faced to introduce Islamic banking in India. The challenges lie in inventing and implementing a mechanism that would be able to unshackle humanity from the bonds of money and era of human supremacy over money rather than money over human beings. Although interest on finance has been denounced by all religions, a serious effort has to be made to find out a practical mechanism to provide institutional finance on an interest free basis. Therefore we should try to overcome the most insurmountable of all obstacles. It would be an era of prosperity for all. Few decades back, the vision of an interest -free world was considered as impractical concept. Given the ingenuity and will of man, however, this dream can come true. It would make the 21st century worth living. It would virtually transform the whole earth into a heaven.

References:

1. INTERNATIONAL JOURNAL OF RESEARCH IN COMMERCE &

MANAGEMENT, Vol. 4(2013), Issue No. 1 (January).

2. Asli Demirguc-Kunt, Leora Klapper, Douglas Randall, ’Islamic Finance and Financial Inclusion’, The World Bank, October 2013.

3. Financial Inclusion: The Islamic Finance Perspective, Zamir Iqbal and Abbas Mirakhor, 2012

4. Financial Exclusion of Indian Muslims, Published on- 20th February 2008, Syed

Zahid Ahmad

5. Inclusive Banking, Purnima S. Tripathi, (HinduOnnet)

6. The Role of Islamic Finance in Enhancing Financial Inclusion in Organization of

Islamic Cooperation (OIC) Countries, Islamic Economic Studies, Vol. 20, No. 2,

December 2012, Zamir Iqbal and Abbas Mirakhor

7. Fintrain Academy, Kolkata, Monthly Newsletter on Banking & Finance, Issue:

November 2013

8. Why India needs Islamic Banking, Thought Paper by Infosys, India.

9. ISLAMIC FINANCE: AN ETHICAL ALTERNATIVE TO CONVENTIONAL

FINANCE, Robert E Michael, the Head of Islamic Finance at the New York City.

10. Interested Parties, Islamic banking has some pluses. But with our secular

banking rules, PRAGYA SINGH, Outlook Magazine.

11. The CGAP Report, Trends in Sharia-Compliant Financial Inclusion, March 2013.

12. IRTI Research Articles (Islamic Research and Training Institute).

13. Ethica Institute of Islamic Finance, Achieving Islamic Finance in India, How can

Islamic Finance Help?

14. Islamic Economics Bulletin, Volume 6-10, Shariq Nisar Website.

15. Social Science Research Network (SSRN), Principles and Practice of Islamic

Finance Systems, Dr. Julius B. Bertillo and Dr. Josefina B. Salando, CPA.

16. Crisil Young Thought Leader, 2008, Diagant Haria

Glossary

� Fatwa: A legal opinion or pronouncement made by a Shari’ah board, a mufti or a

� Gharar: a risky or hazardous sale, where contract details are unknown

� Haram: Forbidden

� Hijiri: Islamic Calendar Date

� Ijarah: Leasing contract

� Ijma: Consensus or agreement of various schools of thought

� Maysir: Gambling

� Mudarabah: Profit and loss-sharing

� Mudarib: Entrepreneur

� Murabahah: Mark-up sale; a “commodity

� Musharakah: Joint partnership

� Qard hasan: Interest-free financing

� Qimar: Gambling

� Riba: Usury, Interest

� Shari’ah: Islamic law

� Sukuk: Islamic bonds

� Sunna: Prophetic tradition

� Takaful: Islamic insurance

Questionnaire

Financial Inclusion through Islamic Finance

Did you ever hear about Islamic Finance?

• Yes

• NO

Did you read about RBI promoting Financial Inclusion?

• Yes

• No

Do you agree that majority of the Muslim Population does not have access to Financial Services?

• Agree

• Disagree

Which factors keep the Muslims away from Financial System?

• Interest/Usury

• Poverty

• Illiteracy

• Other:

Why do you think RBI is not introducing Islamic Finance Models in India?

• Less Scope

• Violates the rules Banking Regulation Act, 1949

• Avoid inflow of Black Money

• Lack of Experts

• Other:

With 200 million Muslim Population and only 40% having access to Financial System, Can

Islamic Finance help RBI achieve Financial Inclusion?

• Yes

• No

Islamic Finance growing at 24% CAGR globally, do you think India is potential market for

Islamic Finance?

• Yes

• No

Student’s Profile

This report was prepared by SUBHAAN KAZI, second year MBA-Finance core

student at Institute for Management and Technology, Kharghar, Navi-Mumbai.

In case of any clarifications regarding this report, kindly mail me at kazi.t@itm.edu