Potential of Islamic Banking India
A DISSERTATION ON
“ISLAMIC BANKING IN INDIA-WHAT IS THE FUTURE POTENTIAL?”
Introduction:
The basic principles on which the Islamic banks function are prohibition of Riba i.e. collection and payment of interest and prohibition of investment in organization involved in unethical and socially harmful activity. the profits earned by a bank from its activities and returns made by a bank to the depositors shall be (a) from sharing of risk in the project and (b) profit-share agreements and not pre-agreed fixed interest payments, which is considered as prohibited earnings because pre-agreed interest agreement has no sharing of risk of investment of money.
In last few decades the Islamic bank has gained huge momentum. It is growing faster than any other subset of world banking; at 15 to 20 per cent a year (see McKinsey report (Exhibit1) for asset growth of Islamic bank as compared to conventional banks in selected few companies).The Economist estimates Islamic assets under management are worth $US700 billion ($1000 billion). This figure could hit $US1 trillion - by 2010.
Now days the Islamic banking has become major point of discussion in India. Even RBI had appointed a committee to check the feasibility of Islamic banking in India. The India wants to achieve two objectives by offering Sharia compliant banking:
a) Financial Inclusion of Muslims: Sachar committee report shows that the Muslims are financially exclude and they are not able to get benefited by the recent growth experienced by India. The report says that the condition of Muslims is similar to that of SC/ST’s. One of the measures of financial loss to Muslims is Credit/deposit ratio which is much lower than the national average. One such calculation is shown in Exhibit (2).
In the state-wise analysis it is found that advances to the Muslims are lower than other minorities (Exhibit 3 shows the graph for few states which has high Muslim population).
b) To attract
“ISLAMIC BANKING IN INDIA-WHAT IS THE FUTURE POTENTIAL?”
Introduction:
The basic principles on which the Islamic banks function are prohibition of Riba i.e. collection and payment of interest and prohibition of investment in organization involved in unethical and socially harmful activity. the profits earned by a bank from its activities and returns made by a bank to the depositors shall be (a) from sharing of risk in the project and (b) profit-share agreements and not pre-agreed fixed interest payments, which is considered as prohibited earnings because pre-agreed interest agreement has no sharing of risk of investment of money.
In last few decades the Islamic bank has gained huge momentum. It is growing faster than any other subset of world banking; at 15 to 20 per cent a year (see McKinsey report (Exhibit1) for asset growth of Islamic bank as compared to conventional banks in selected few companies).The Economist estimates Islamic assets under management are worth $US700 billion ($1000 billion). This figure could hit $US1 trillion - by 2010.
Now days the Islamic banking has become major point of discussion in India. Even RBI had appointed a committee to check the feasibility of Islamic banking in India. The India wants to achieve two objectives by offering Sharia compliant banking:
a) Financial Inclusion of Muslims: Sachar committee report shows that the Muslims are financially exclude and they are not able to get benefited by the recent growth experienced by India. The report says that the condition of Muslims is similar to that of SC/ST’s. One of the measures of financial loss to Muslims is Credit/deposit ratio which is much lower than the national average. One such calculation is shown in Exhibit (2).
In the state-wise analysis it is found that advances to the Muslims are lower than other minorities (Exhibit 3 shows the graph for few states which has high Muslim population).
b) To attract