Shariah Investment in India: An Unexplored Opportunity

The Religious set of banking, especially Islamic Banking and Investment was nonexistent around 30 years back. But in 2006, Islamic financial institutions’ (IFIs) assets worldwide were estimated at more than $300 billion, with another $400 billion in financial investments, according to a study by accounting firm KPMG. Which is considerable and the growth momentum noticed by KPMG is also substantial.

According to the study conducted by Consulting firm McKinsey & Co the current growth rate of Islamic Banking & Investment is 15% annually and in coming 5 years this rate is going to be 20%.

Islamic finance is built on the premise that while “commerce had always been central to Islamic tradition, profits from pure finance [are] viewed with suspicion. Profits from commerce are fundamentally different from those generated by money-lending.”

Islam prohibits riba (“extra” or interest) and usury (excessive interest), because fixed, pre-determined interest-based lending casts an inherent risk of the lender exploiting the borrower. Islamic banking differs in the relationships between borrower and lender, favouring profit-and-loss sharing or partnership finance.

Most large western financial institutions have Islamic subsidiaries or at least Islamic products. In the US, a Dow Jones Islamic market index (DJIM) was launched in 1999 to benchmark Shariah-compliant portfolios, even employing a board of Shariah scholars.

Lately though the formal introduction in Banking is delayed jointly by RBI and SEBI, because of complex methods of operation