Abstract
The banking sector plays a vital role in growth-supporting factor for economic growth in the world’s fastest-growing economies like India. Recently, Islamic banking has become an increasingly popular method for alleviating poverty, financial inclusion and economic development around the world. Its importance is highly needed in developing and emerging countries such as India. The main purpose of the paper is to identify and prioritize the critical impeding factors for Islamic banking growth in India. The study is conducted in two stages: the first stage involves investigating the current literature works regarding the challenges facing Islamic banking industry in India, while the second stage is based on identifying and prioritizing these challenges according to its importance in hindering Islamic banking growth by Analytic Hierarchy Process (AHP). AHP is a multi-criterion decision making tool for organizing and analyzing decisions, based on qualitative and quantitative measures. The results show that the regulatory environmental challenge is the most significant factor among other factors in impeding the growth of Islamic banking in India followed by lack of Islamic banking experts and scholars. The third main challenge is lack of awareness for Islamic banking instruments followed by lack of standardization and the last is lack of cooperation and coordination between Islamic banking authorities. This study is considered the first one to address empirically the challenges facing Islamic banking industry in the world and particularly in India.
Highlights
Islamic finance or Interest free banking as called in India is a financial system based on divine principles sourced from Muslims holy book “Holy Quran” and Sunnah
The study is conducted in two stages: the first stage involves investigating the current literature works regarding the challenges facing Islamic banking industry in India, while the second stage is based on identifying and prioritizing these challenges according to its importance in hindering Islamic banking growth by Analytic Hierarchy Process (AHP)
Islamic banking assets account for 78% from total Islamic finance assets, Islamic bonds accounts for 16%, Takaful accounts for 1%, Islamic funds account for 4% and Islamic microfinance has 1% share in the Islamic finance industry (Earnest & Young, 2016)
Summary
Islamic finance or Interest free banking as called in India is a financial system based on divine principles sourced from Muslims holy book “Holy Quran” and Sunnah (all sayings, actions, teachings of Prophet Muhammad). It is considered and marked as a safe financial system that its assets grow exponentially year after year. Risk and returns are shared among investors based on a pre-agreed ratio. Islamic finance is expected to grow fast in 2017. Islamic banking assets account for 78% from total Islamic finance assets, Islamic bonds accounts for 16%, Takaful accounts for 1%, Islamic funds account for 4% and Islamic microfinance has 1% share in the Islamic finance industry (Earnest & Young, 2016)
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