Adoption of Islamic finance in India: stakeholders theory perspective

Abstract

During the time when the world s largest banks and financial institutions have collapsed and are in need of bailouts, Islamic financial institutions have largely been successful in holding their ground well and are expected to contribute to 4% growth to world s economy. Islamic Finance or Banking has been identified as a viable and competitive form of financial intermediation, spreading geographically across the world and offering a wide range of financial products and services. In Indian context, despite the sizable population strength that was expected to be potential customers of this banking practice, Islamic Banking failed to make a visible impact. In recent times, Islamic Banking has been identified as a strategy of high opportunity in India as well. The purpose of this project is to define the basic concepts of Islamic Finance, identify the growth factors and challenges ahead of the system, and analyze the possible Adoption strategy in India through the application of stakeholder theory. Section 1 discusses the basics of Islamic Banking Concepts, Finance in India and the reason behind our study Section 2 focuses on the stakeholder theory and identifies the possible stakeholders in Indian context for Islamic Banking System, their power, interest and inter-dependencies. Section 3 discusses Islamic Finance in terms of the comparisons with conventional banking, its success factors and the strategies adopted in current implementations across the world Section 4 identifies the growth factors and challenges involved in implementing Islamic Finance in India context and problems associated with the stakeholders in the system. Section 5 concludes the discussion and lists the observations that we came across through the fieldwork and the analysis. The Islamic Glossary provides brief definition of words commonly used in Islamic Banking practice. The usages of Islamic Banking or Islamic Finance in this document are used interchangeably and are considered synonyms unless mentioned otherwise. Appendix 1 3 list the features/concepts illustrations, questionnaires used in the study and the responses based on our fieldwork. Brief profile description of some of the respondents is also included.