Islamic banking is not a new name in countries like US and UK, but its promising growth opportunity in India caught my attention when I recently read a market analysis report made by Grail Research Company. It suggests that the asset base of Islamic finance institutions is expected to rise by more than 200% by 2016. Now, this data analysis has made me ponder over the reasons for this tremendous growth opportunity, for which I have some interesting points to discuss here.
India is a secular state and there has been a favourable change in regulatory environment for banking institutions in recent past. Also, increased awareness among Muslims about banking and other financial entities supports the huge potential for Islamic banking here.
The size of the market is very large (about 17 crore) in India, but majority of them have not been able to access the banking services because giving or receiving interest is prohibited as per Islamic principles. However, one can lend money on profit sharing or a fee based model and therefore I believe Islamic financial institutions can flourish in the country.
In my view, Islamic banks can attract trillion of dollors belonging to Muslims and their money currently invested in US and other European countries. After 9/11 attacks, these people are looking for alternative investment destinations and India tops the list because of her liberal banking policies.
Presently in India, only 10-15 such banks are operating and they are confined to co-operative sector only. The sources of funds of these institutions are limited and therefore they have no options but to operate on small scale missing huge opportunity. I believe one of the reasons for widespread poverty among Muslims is that they are not open to taking loans from financial institutions and banks due to their religious principles as discussed earlier. They will be able to do business only when they start getting interest-free loans and Islamic banking brings the right solutions for them.
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