Islamic finance : Analysis of opportunities, challenges and adoption strategies in the Indian context

Abstract

Even though there has been steady growth of Islamic banking institutions and volume of assets base managed through Islamic finance principles across the world, India has not shown any improvement towards adoption Islamic banking practices. Islamic banking has not only been growing owing to the religious inclination but also due to increase in attitude towards alternative banking principles based on risk sharing and asset backing against money based financial business transactions. The purpose of this report is to define Islamic banking principles, understand its products, identify the challenges involved in Islamic banking industry, study India’s current position on regulations and Islamic banking infrastructure, and analyse possible adoption strategies for Islamic banking institutions. Apart from secondary research on many areas of Islamic finance and its Indian context, interviews were taken to understand the current Indian scenario with respect to regulations and to understand the current state of affairs in maturity of Islamic banking industry across the world. The report comprises of the following sections: Study on Islamic banking principles and products Analysis of industry forces and challenges in Islamic banking through Porter’s framework and value chain analysis to identify challenges in its operational aspects Analysis of India’s current standing of Islamic financial institutions and restrictions binding the industry Study on success factors of Islamic banking institutions across the world Analysis of adoption strategies for Islamic banking institutions and analysis of requisite regulation reforms and infrastructure through stakeholder’s theory approach and conclusion. 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.