Abstract
Islamic finance based on Shariah rules against Riba (interest), profit-loss sharing,
and ethical investment is a robust alternative to traditional banking, especially in the
case of underserved populations. In India, where the Muslim population is more than
210 million (14.2 percent of the population by 2025), this framework has massive
potential of financial inclusion when there is continued exclusion of a larger
proportion of more than 40 percent of the population including 140 million adults
without a bank account. Nonetheless, poor regulatory barriers in the Banking
Regulation Act (1949), socio-political mistrust and low awareness are the breeders
of its impediments leaving an unutilized market worth USD 100-150 billion a year.
This thesis is a critical analysis of the challenges and opportunities of Islamic finance
in India taking a pragmatic approach of mixed methods. Phase 1 entailed semistructured interviews of 20 stakeholders (regulators, academics, providers), and
how they perceived and felt as to barriers. The survey of phase 2 involved 750
different respondents (potential customers) in the urban, semi-urban and rural
regions through Google Forms using purposive and convenience sampling.
Qualitative data were thematically analysed, and the descriptive statistics of
quantitative responses identified the following: 55% of awareness rates, 70% of
participants saw ethical benefits but 45% of the participants reported regulatory
barriers as the main challenges. Muslims were found to be 70% positive intent and
non-Muslims (65% economic appeal) were 35% skeptical because of exclusivity
misconception. Socio-economic differences were also emphasised in the urban-rural differences (65% vs. 35% familiarity).
Results indicate that regulatory changes (e.g., revising Sections 5(b) and 21 to
engage in risk-sharing), education of people, technological innovations in the fintech
sector, and international partnerships are desirable methods of mitigation. Islamic
finance would increase GDP 1-2, increase SME financing (open USD 50 billion),
and bring in FDI, which would promote sustainable development in line with SDGs.
This research has empirical value to under researched contexts of India by providing
practical guidelines to policymakers and institutions to promote fair development.
Lack of longitudinal study and bias in sampling are limitations and longitudinal and
regional research should be used in future.