Introduction To The Concept of Islamic Banking - An Indian Pespective

INTRODUCTION TO THE CONCEPT OF ISLAMIC BANKING AN INDIAN PERSPECTIVE
Ranjan B U Lecturer at Mandavya First Grade College- Mandya - Karnataka Page 1

1.1 INTRODUCTION

Islamic banking is popularly known as Interest free banking, originated in
Egypt around the year 1963. It has grown at the rate of 15% per annum and
today, it accounts for about USD300 bn in assets and projected to reach USD
1 trillion by the end of 2014. Ever since its inception in an Egyptian hamlet,
Islamic banking has never looked back. An Islamic Development Bank was
established in Jeddah in 1975 and a number of commercial banks such as the
Dubai Islamic Bank, the Kuwait Finance House and the Bahrain Islamic Bank
also came into existence in the 1970s and 1980s. The banking system in
Pakistan and Iran is also Islamized to a large extent. Now there are about 203
Islamic Financial Institutions including banks. Besides these exclusive
Islamic Financial Institutions, some banks in the West serve the Muslim
community in accordance with their religious principles.
Islamic banking has the same purpose as conventional banking except that it
operates in accordance with the rules of Shariah, known as Fiqh al-Muamalat
(Islamic rules on transactions). The basic principle of Islamic banking is the
sharing of profit and loss and the prohibition of riba (usury). Amongst the
common Islamic concepts used in Islamic banking are profit sharing
(Mudharabah), safekeeping (Wadiah), joint venture (Musharakah), cost plus
(Murabahah), and leasing (Ijarah).


1.2 LITERATURE REVIEW
Presently in India, Islamic banking is confined to the co-operative
sector. Only 10-15 Islamic banks with deposits of about Rs 75 cr are
operating all over the country in various states. They are actually non-
banking finance companies (NBFCs), which work on no-profits-no-
loss basis. Islamic banks by and large cater to the needs of local area
except a few that operate across districts or states. These banks do not
function under banking regulations. They are licensed under Non
Banking Finance Companies Reserve Bank Directives 1997 RBI
(Amendment) Act 1997. RBI has also introduced a compulsory
registration system.
(This extract is from an article published in Sify Finance October, 2005)
In India, with the world's second largest Muslim population of 154
million, the lack of Islamic banking is a barrier to the flow of
substantial funds into the market. "There is at least Rs5,000 crore of
unclaimed interest in Kerala alone. People prefer to put their money in
gold or jewellery, which is the worst kind of investment from an
economic point of view," says Shariq Nisar, CEO, Bearys Amanah
Investment. There are atleast 300 Islamic societies which accept
deposits and lend money, but can't make a business of it because of the
Shariah's prohibition of interest.


And they are not able to convert themselves into banks because the
government will not permit any form of banking without interest. Some
of them have collected more than Rs200 crore in interest-free deposits,
but they do not have any avenue to invest that money.
(This extract is from an article published in DNA November 9, 2008)

With Islamic finance industry at its infancy in India, a lot of
misconception has been creeping in such considering this banking
system exclusively for Islam followers. But the sources from around
world says that some of the banks that are operating in Malaysia and
Baharain, which are considered to be the hub for Islamic banking has
more of non Islam followers as their customers.
( This is an abstract taken from an article published in The Mille Gazette , July
issue 2006)
The Indian banking system is losing a staggering Rs2-3 lakh crore
annually, due to the delay in introducing Islamic banking laws, analysts
say. K Rehaman Khan, deputy chairman of Rajya Sabha added that
once the system is recognized, savings of the Muslim community
would only make Indian banking richer and stronger.
(This is an abstract taken from an article published in June issue of The Financial
Express, 2006)



1.3 NEED OF THE STUDY

In India Islamic banking has not been legally employed. Its presence is only
in the NBFCs. Even though international banks like HSBC and Standard
Chartered bank are pressurizing the government to implement Islamic
banking in the banking system of the country, its papers are still in pipeline.
Moreover there are 4400 companies that are Shariah-complaint, which is the
highest in comparison to Malaysia or Pakistan. India has an Islam following
population of 150million which definitely is a potential market for Islamic
banking if implemented in India. But there is already news around the nation
that Islamic banking is not suitable for a nation like India which is a secular
state with very religion conscious people. And some experts states that the
Islamic banking will fail in India since the name of the banking system will
create misconception in the minds of the people. It is necessary to know the
opinion of people regarding the implementing Islamic banking in India.
Hence a study is to be done in order to find the attitude and opinion about
Islamic banking in India.



1.4 STATEMENT OF THE PROBLEM

Islamic banking command assets base of $2 trillion across the world. In India,
with the world's second largest Muslim population of 154 million, the lack of
Islamic banking is a barrier to the flow of substantial funds into the market
and its presence only in Non Banking Financial Sector and not in the regular
banking business.
Even though there are similarities to conventional banking it cannot be
carried out in the similar lines since it has alliance to the Islam religious
principles. But the strategy to enter must be very effective since its presence
in India is in an infancy stage. Thus this study will provide an insight into the
areas of concern that has to be dealt with when adopting Islamic banking in
India. And to understand the attitude and acceptance of people if Islamic
banking is adopted in India.
The title of the study -
Introduction to the concept of Islamic banking an Indian perspective



1.5 OBJECTIVE OF THE STUDY

To study the acceptance of interest-free banking in Mangalore, India.
To find the awareness level of interest-free banking among people in
Mangalore, India.
To determine the prospect of Islamic banking in India.
To understand the attitude of the people on introduction of Islamic
banking in India.
To understand the problems in implementing Islamic banking in India.

1.6 SCOPE OF THE STUDY
This study will provide an insight to existing bankers and new Islamic
banks to form strategies and to adopt informative decisions for implementing
Islamic banking in India. This study on Islamic banking will give bankers an
insight on their prospective clients.



1.7 RESEARCH METHODOLODY

1.7.1 Type of study:
The type of study that was carried out was both exploratory and descriptive
Researches. The Exploratory research gave an insight into Islamic banking in
India, and descriptive research helped in measuring various parameters.

1.7.2 Sources of data:
The sources of data were primary sources and secondary sources.

1.7.3 Method of collecting primary data:
The information required was collected through questionnaires, by using a
survey or descriptive research method.

1.7.4 Sources of secondary data:
Secondary data means data that are already available i.e. they refer to the data
which has been collected and analyzed by someone and can save both money
and time of the researcher if it is complete and not outdated. Secondary data
sources are as follows:



News paper articles: The Hindu, Economic Times, Financial Express,
Indian Express.

Journals: ICFAI Journal, Indian Journal of Finance, Infosys finacle etc.

Websites: www.surveymoney.com, www.survio.com, www.studymode.com,
www.slideshare.com etc.

YouTube: 1.What Is Your Opinion On Islamic Banking? Sheikh Imran Hosein
(http://www.youtube.com/watch?v=W1zbdg64nAI )
2. Dr Subramanian Swamy explains Islamic Banking in India etc.
(http://www.youtube.com/watch?v=fTyFmlQOmIU)

1.7.5 Type of survey:
A sample survey was carried out.

1.7.6 Sampling Unit:
The sampling units were Bankers, Students, Entrepreneurs, Professionals,
Govt. employees, Pvt. Employees, & others.



1.7.7 Sample size:
The sample size considered for the study was 60 & which also includes the
sample of Muslims & Bankers.

1.7.8 Tools for data collection:
A structured questionnaire was formulated and given to a respondent which
was the tool that was utilized for data collection along with the secondary
data collection. The questionnaire was formulated in such a way as to have a
very few open ended questions to make it easier for analysis of data. Each
questionnaire was distributed and collected by the researcher in person.

1.7. 9 Analysis & Interpretation of data:
The data obtained from all respondents was analyzed & presented
systematically through tabular & graphical representation so as to reach the
desire end.



1.8 LIMITATIONS OF THE STUDY

The main limitation of the study was that Islamic banking is only an
emerging concept hence the sample may not truly represent the
population.

Further due to limited time constraint the sample size was 100 only.
But efforts were taken that it represents the population.

The coverage of study was limited to Mangalore alone and the result of
this may not truly represents the whole of the country.

The study is restricted only to an introductory stage; it doesnt involve
the deeper perspective.



1.9 CHAPTER SCHEME
The study was divided into five chapters and presented accordingly,

Chapter 1:
Introduction to the topic This chapter will include the introduction,
statement of the problem, need, objective, research methodology, literature
review, scope, limitation of study.

Chapter 2:
Theoretical Framework This chapter will include the concepts, definitions
& related issues of the topic.

Chapter 3:
Service Profile This chapter will comprise the details about banking industry,
scope, growth, opportunities, challenges, PEST.



Chapter 4:
Analysis and interpretation in this chapter the data collected from the
respondents will be tabulated and the analysis will be done with the help of
statistical tools.

Chapter 5:
Summary of Findings, Conclusions and suggestions This chapter will
include the summary of findings obtained from the inferences and the
conclusions will be made with respect to the findings.

____________________________________



2.1 INTRODUCTION

Islamic banking is a new phenomenon that has taken many observers by
surprise. The whole banking system has been Islamized in both Iran and
Pakistan. In addition, there are some thirty Islamic banks in operation in other
parts of the globe, including the Jeddah-based Islamic Development Bank
(IDB) but excluding numerous non-bank Islamic financial institutions.

Islamic banking refers to a system of banking or banking activity that is
consistent with the principles of Islamic law (Sharia) and its practical
application through the development of Islamic economics. Sharia prohibits
the payment of fees for the renting of money (Riba, usury) for specific terms,
as well as investing in businesses that provide goods or services considered
contrary to its principles (Haraam, forbidden). While these principles were
used as the basis for a flourishing economy in earlier times, it is only in the
late 20th century that a number of Islamic banks were formed to apply these
principles to private or semi-private commercial institutions within the
Muslim community.

The World Islamic Banking Conference held annually in Bahrain since 1994
is the unique platform internationally recognized as the largest and most
significant gathering of Islamic banking and finance leaders in the world.


2.1.1 Evolution of Islamic Banking:
The first modern experiment with Islamic banking was undertaken in Egypt
under cover, without projecting an Islamic image, for fear of being seen as a
manifestation of Islamic fundamentalism. The pioneering effort, took the
form of a savings bank based on profit-sharing in the Egyptian town of Mit
Ghamr in l963. This experiment lasted until l967 (Ready l98l), by which time
there were nine such banks in the country. They functioned essentially as
saving- investment institutions rather than as commercial banks. The Nasir
Social Bank, established in Egypt in l97l, was declared an interest-free
commercial bank, although its charter made no reference to Islam or Shariah
(Islamic law).

The IDB was established in l974 by the Organization of Islamic Countries
(OIC), but it was primarily an inter-governmental bank aimed at providing
funds for development projects in member countries. The IDB provides fee-
based financial services and profit-sharing financial assistance to member
countries. The IDB operations are free of interest and are explicitly based on
Shariah Principles.

In the seventies, a number of Islamic banks, both in letter and spirit, came
into existence in the Middle East, e.g., the Dubai Islamic Bank (l975), the
Faisal Islamic Bank of Sudan (l977), the Faisal Islamic Bank of Egypt (l977),
and the Bahrain Islamic Bank (l979), to mention a few. The Asia-Pacific
region was not oblivious to the winds of change. The Philippine Amanah
Bank (PAB) was established in l973 by Presidential Decree as a specialized
banking institution without reference to its Islamic character in the bank's
charter.


Islamic banking made its debut in Malaysia in l983, the first Islamic financial
institution in Malaysia was the Muslim Pilgrims Savings Corporation set up
in l963 to help people save for performing hajj (pilgrimage to Mecca and
Medina). In l969, this body evolved into the Pilgrims Management and Fund
Board or the Tabung Haji, as a non-bank financial institution. The success of
the Tabung Haji, however, provided the main impetus for establishing Bank
Islam Malaysia Berhad (BIMB) which represents a full-fledged Islamic
commercial bank in Malaysia. BIMB has a complement of fourteen branches
in several parts of the country. Plans are afoot to open six new branches a
year so that by l990 the branch network of BIMB will total thirty-three (Man
l988).

Reference should also be made to some Islamic financial institutions
established in countries where Muslims are a minority. There was a
proliferation of interest-free savings and loan societies in India during the
seventies (Siddiqi l988). The Islamic Banking System (now called Islamic
Finance House), established in Luxembourg in l978, represents the first
attempt at Islamic banking in the Western world. There is also an Islamic
Bank International of Denmark, in Copenhagen, and the Islamic Investment
Company has been set up in Melbourne, Australia.

2.1.2 Principles of Islamic Banking:

In an Islamic mortgage transaction, instead of loaning the buyer money to
purchase the item, a bank might buy the item itself from the seller, and re-sell
it to the buyer at a profit, while allowing the buyer to pay the bank in
installments. However, the fact that it is profit cannot be made explicit and
therefore there are no additional penalties for late payment.


In order to protect itself against default, the bank asks for strict collateral.
The goods or land is registered in the name of the buyer from the start of the
transaction. This arrangement is called Murabaha. Another approach is
EIjara wa EIqtina, which is similar to real estate leasing. Islamic banks
handle loans for vehicles in a similar way (selling the vehicle at a higher-
than-market price to the debtor and then retaining ownership of the vehicle
until the loan is paid).

An innovative approach applied by some banks for home loans, called
Musharaka al-Mutanaqisa, allows for a floating rate in the form of rental.
The bank and borrower forms a partnership entity, both providing capital at
an agreed percentage to purchase the property. The partnership entity then
rent out the property to the borrower and charges rent. The bank and the
borrower will then share the proceeds from this rent based on the current
equity share of the partnership.

At the same time, the borrower in the partnership entity also buys the bank's
share on the property at agreed installments until the full equity is transferred
to the borrower and the partnership is ended. If default occurs, both the bank
and the borrower receive the proceeds from an auction based on the current
equity. This method allows for floating rates according to current market rate
such as the BLR (base lending rate), especially in a dual-banking system like
in Malaysia.

There are several other approaches used in business deals. Islamic banks lend
their money to companies by issuing floating rate interest loans. The floating
rate of interest is pegged to the company's individual rate of return.


Thus the bank's profit on the loan is equal to a certain percentage of the
company's profits. Once the principal amount of the loan is repaid, the profit-
sharing arrangement is concluded. This practice is called Musharaka.

Further, Mudaraba is venture capital funding of an entrepreneur who
provides labor while financing is provided by the bank so that both profit and
risk are shared. Such participatory arrangements between capital and labour
reflect the Islamic view that the borrower must not bear all the risk/cost of a
failure, resulting in a balanced distribution of income and not allowing lender
to monopolize the economy.

And finally, Islamic banking is restricted to Islamic ally acceptable deals,
which exclude those involving alcohol, pork, gambling, etc. Thus ethical
investing is the only acceptable form of investment, and moral purchasing is
encouraged.

In theory, Islamic banking is an example of full-reserve banking, with banks
achieving a 100% reserve ratio However, in practice, this is not the case, and
no examples of 100 per cent reserve banking are observed. Islamic banks
have grown recently in the Muslim world but are a very small share of the
global banking system. Micro-lending institutions founded by Muslims,
notably Grameen Bank, use conventional lending practices and are popular in
some Muslim nations, especially Bangladesh, but some do not consider them
true Islamic banking.

However, Muhammad Yunus, the founder of Grameen Bank and
microfinance banking, and other supporters of microfinance, argue that the
lack of collateral and lack of excessive interest in micro-lending is consistent
with the Islamic prohibition of usury (riba).


2.1.3 Islamic Banking Terminology:

1) Bai' al-inah (sale and buy-back agreement)
The financier sells an asset to the customer on a deferred-payment basis, and
then the asset is immediately repurchased by the financier for cash at a
discount. The buying back agreement allows the bank to assume ownership
over the asset in order to protect against default without explicitly charging
interest in the event of late payments or insolvency. Some scholars believe
that this is not compliant with Shariah principles.

2) Bai' bithaman ajil (deferred payment sale)
This concept refers to the sale of goods on a deferred payment basis at a
price, which includes a profit margin agreed to by both parties. This is similar
to Murabahah, except that the debtor makes only a single installment on the
maturity date of the loan. By the application of a discount rate, an Islamic
bank can collect the market rate of interest.

3) Bai muajjal (credit sale)
Literally bai muajjal means a credit sale. Technically, it is a financing
technique adopted by Islamic banks that takes the form of murabaha muajjal.
It is a contract in which the bank earns a profit margin on the purchase price
and allows the buyer to pay the price of the commodity at a future date in a
lump sum or in installments. It has to expressly mention cost of the
commodity and the margin of profit is mutually agreed. The price fixed for
the commodity in such a transaction can be the same as the spot price or
higher or lower than the spot price. (Deferred-payment sale)



4) Mudarabah (profit sharing)
Mudarabah is an arrangement or agreement between the bank, or a capital
provider, and an entrepreneur, whereby the entrepreneur can mobilize the
funds of the former for its business activity. The entrepreneur provides
expertise, labor and management. Profits made are shared between the bank
and the entrepreneur according to predetermined ratio. In case of loss, the
bank loses the capital, while the entrepreneur loses his provision of
labor. It is this financial risk, according to the Shariah, that justifies the bank's
claim to part of the profit. The profit-sharing continues until the loan is
repaid. The bank is compensated for the time value of its money in the form
of a floating rate that is pegged to the debtor's profits.

5) Murabahah (cost plus)
"Mudarabah" is a special kind of partnership where one partner gives money
to another for investing it in a commercial enterprise. The investment comes
from the first partner who is called "rabb-ul-mal", while the management and
work is an exclusive responsibility of the other, who is called "mudarib". This
concept refers to the sale of goods at a price, which includes a profit margin
agreed to by both parties. The purchase and selling price, other costs, and the
profit margin must be clearly stated at the time of the sale agreement. The
bank is compensated for the time value of its money in the form of the profit
margin. This is a fixed-income loan for the purchase of a real asset (such as
real estate or a vehicle), with a fixed rate of profit determined by the profit
margin. The bank is not compensated for the time value of money outside of
the contracted term (i.e.,the bank cannot charge additional profit on late
payments); however, the asset remains as a mortgage with the bank until the
Murabaha is paid in full. This type of transaction is similar to rent-to-own
arrangements for furniture or appliances that are very common in North
American stores.


6) Musawamah
Musawamah is the negotiation of a selling price between two parties without
reference by the seller to either costs or asking price. While the seller may or
may not have full knowledge of the cost of the item being negotiated, they are
under no obligation to reveal these costs as part of the negotiation process.
This difference in obligation by the seller is the key distinction between
Murabaha and Musawamah with all other rules as described in Murabaha
remaining the same. Musawamah is the most common type of trading
negotiation seen in Islamic commerce.

7) Bai salam
Bai Salam means a contract in which advance payment is made for goods to
be deliveredlater on. The seller undertakes to supply some specific goods to
the buyer at a future datein exchange of an advance price fully paid at the
time of contract. It is necessary that the quality of the commodity intended to
be purchased is fully specified leaving no ambiguity leading to dispute. The
objects of this sale are goods and cannot be gold, silver, or currencies based
on these metals. Barring this, Bai Salam covers almost everything that is
capable of being definitely described as to quantity, quality, and
Workmanship.

8) I jarah thumma al bai' (hire purchase)
Parties enter into contracts that come into effect serially, to form a complete
lease/buyback transaction. The first contract is an Ijarah that outlines the
terms for leasing or renting over a fixed period, and the second contract is a
Bai that triggers a sale or purchase once the term of the Ijarah is complete.
For example, in a car financing facility, a customer enters into the first
contract and leases the car from the owner (bank) at an agreed amount over a


specific period. When the lease period expires, the second contract comes into
effect, which enables the customer to purchase the car at an agreed to price.
The bank generates a profit by determining in advance the cost of the item, its
residual value at the end of the term and the time value or profit margin for
the money being invested in purchasing the product to be leased for the
intended term. The combining of these three figures becomes the basis for the
contract between the Bank and the client forinitial lease contract.

9) I jarah-wal-iqtina
A contract under which an Islamic bank provides equipment, building, or
other assets to the client against an agreed rental together with a unilateral
undertaking by the bank or the client that at the end of the lease period, the
ownership in the asset would be transferred to the lessee. The undertaking or
the promise does not become an integral part of the lease contract to make it
conditional. The rentals as well as the purchase price are fixed in such manner
that the bank gets back its principal sum along with profit over the period of
lease.

10) Musharakah (joint venture)
Musharakah is a relationship between two parties or more, of whom
contribute capital to a business, and divide the net profit and loss pro rata.
This is often used in investment projects, letters of credit, and the purchase or
real estate or property. In the case of real estate or property, the bank assesses
an imputed rent and will share it as agreed in advance. All providers of capital
are entitled to participate in management, but not necessarily required to do
so. The profit is distributed among the partners in pre-agreed ratios, while
the loss is borne by each partner strictly in proportion to respective capital
contributions. This concept is distinct from fixed-income investing (i.e.
issuance of loans).


11) Qard hassan/ Qardul hassan (good loan/benevolent loan)
This is a loan extended on a goodwill basis, and the debtor is only required to
repay the amount borrowed. However, the debtor may, at his or her
discretion, pay an extra amount beyond the principal amount of the loan
(without promising it) as a token of appreciation to the creditor. In the case
that the debtor does not pay an extra amount to the creditor, this transaction is
a true interest-free loan. Some Muslims consider this to be the only type of
loan that does not violate the prohibition on riba, since it is the one type of
loan that truly does not compensate the creditor for the time value of money.

12) Sukuk (I slamic bonds)
Sukuk is the Arabic name for a financial certificate but can be seen as an
Islamic equivalent of bond. However, fixed-income, interest-bearing bonds
are not permissible in Islam. Hence, Sukuk are securities that comply with the
Islamic law (Shariah) and its investment principles, which prohibit the
charging or paying of interest. Financial assets that comply with the Islamic
law can be classified in accordance with their tradability and non-tradability
in the secondary markets.

13) Takaful (Islamic insurance)
Takaful is an alternative form of cover that a Muslim can avail himself
against the risk of loss due to misfortunes. Takaful is based on the idea that
what is uncertain with respect to an individual may cease to be uncertain with
respect to a very large number of similar individuals. Insurance by combining
the risks of many people enables each individual to enjoy the advantage
provided by the law of large numbers.



14) Wadiah (safekeeping)
In Wadiah, a bank is deemed as a keeper and trustee of funds. A person
deposits funds in the bank and the bank guarantees refund of the entire
amount of the deposit, or any part of the outstanding amount, when the
depositor demands it. The depositor, at the bank's discretion, may be
rewarded with Hibah as a form of appreciation for the use of funds by
the bank.

2.1.4 References to Riba (interest/usury) in Quran & Hadith:

Riba can be roughly translated as Usury. Riba is forbidden in Islam and
considered as a major sin. Simply, unjust gains in trade or business, generally
through exploitation. The Qur'an deals with riba in 12 verses, the word
appearing eight times in total, three times in 2:275, and once in 2:276, 2:278,
3:130, 4:161 and 30:39. Even we can get lot more references regarding to
Riba/Usury in other Islamic texts.

In Quran:

Those who devour usury will not stand except as stand one whom the
Evil one by his touch Hath driven to madness. That is because they say:
"Trade is like usury," but Allah hath permitted trade and forbidden usury
(Quran 2.275)

Allah will deprive usury of all blessing, but will give increase for deeds
of charity: For He loved not creatures ungrateful and wicked (Quran 2.276)



O ye who believe! Fear Allah, and give up what remains of your demand
for usury, if ye are indeed believers. (Quran 2.278)

ye who believe! Devour not usury, doubled and multiplied; but fear
Allah; that ye may (really) prosper. (Quran 3.130)

That they took usury, though they were forbidden; and that they devoured
men's substance wrongfully; we have prepared for those among them who
reject faith a grievous punishment. (Quran 4.161)

That which ye give in usury in order that it may increase on (other)
people's property hath no increase with Allah; but that which ye give in
charity, seeking Allah's Countenance, hath increase manifold.(Quran 30.39)

In Hadith:

Jabir said that Muhammad cursed the accepter of usury and its payer, and
one who records it, and the two witnesses, and he said: They are all equal.
(Sahih Muslim, Book 10, Number 3881)

Narrated AbuHurayrah: Muhammad said: If anyone makes two
transactions combined in one bargain, he should have the lesser of the two
or it will involve usury. (Sunan Abu Daud, Book 23, Number 3454)

Jabir (RA) said that the Messenger of God (PBUH) cursed the taker of
Riba, giver, the writer of it, and its two witnesses, and he said: 'They are
all equal. (Sahih Muslim, 4177)



Abdul Rahman ibn Abdullah ibn Masoud (RA) said: The Messenger of
God (PBUH) cursed the taker of Riba, the giver, the witness and the
writer. (Sunan Abi Dawoud, 3543. Hadith Hasan 1)
Narrated Ibn 'Umar: Muhammad said, "The selling of wheat for wheat is
Riba (usury) except if it is handed from hand to hand and equal in
amount. Similarly the selling of barley for barley, is Riba except if it is
from hand to hand and equal in amount, and dates for dates is usury
except if it is from hand to hand and equal in amount.
(Sahih Bukahri, Volumn 3, Book 034, Number 379)

Muhammad declared the practice of riba worse than zina, worse than "to a
man committing zina with his own mother" (Recorded in Sunan ibn Majah)

2.2 SOURCES OF FUNDS

Besides their own capital and equity, Islamic banks rely on two main sources
of funds, a) transaction deposits, which are risk free but yield no return and,
b) investment deposits, which carry the risks of capital loss for the promise of
variable. In all, there are four main types of accounts:

A. Current accounts:
Current accounts are based on the principle of al-wadiah, whereby the
depositors are guaranteed repayment of their funds. At the same time, the
depositor does not receive remuneration for depositing funds in a current
account.


Rather, the funds accumulating in these accounts can only be used to balance
the liquidity needs of the bank and for short-term transactions on the bank's
responsibility. The Islamic banks provide the broad range of payment
facilities - clearing mechanisms, bank drafts, bills of exchange, travellers
cheques, etc. (but not yet, credit cards or bank cards). More often than not, no
service charges are made by the banks in this regard.

B. Savings accounts:
Savings accounts also operate under the al-wadiah principle. Savings
accounts differ from current deposits in that they earn the depositors income:
depending upon financial results, the Islamic bank may decide to pay a
premium, hiba, at its discretion, to the holders of savings accounts. The
savings account holders are issued with savings books and are allowed to
withdraw their money as and when they please.

C. Investment accounts:
The investment account is based on the mudaraba principle, and the deposits
are term deposits which cannot be withdrawn before maturity. The profit-
sharing ratio varies from bank to bank and from time to time depending on
supply and demand conditions. In theory, the rate of return could be positive
or negative. The conditions of this account differ from those of the savings
accounts by virtue of:
a) a higher fixed minimum amount, b) a longer duration of deposits, and c)
most importantly, the depositor may lose some of or all his funds in the event
of the bank making losses.

D. Special investment accounts:
Special investment accounts also operate under the mudaraba principle, and
usually are directed towards larger investors and institutions.


The difference between these accounts and the investment account is that the
special investment account is related to a specified project, and the investor
has the choice to invest directly in a preferred project carried out by the bank.

2.3 USES OF FUNDS
The mudaraba and musharaka modes, referred to earlier, are supposedly the
main conduits for the outflow of funds from banks. In practice, however,
other important methods applied by Islamic banks include:

A. Murabaha (mark up):
The most commonly used mode of financing seems to be the 'mark-up'
device. In a murabaha transaction, the bank finances the purchase of a good
or assets by buying it on behalf of its client and adding a mark-up before
reselling it to the client on a 'cost-plus' basis profit contract.

B. Bai' muajjal (deferred payment):
Islamic banks have also been resorting to purchase and resale of properties on
a deferred payment basis. It is considered lawful in fiqh (jurisprudence) to
charge a higher price for a good if payments are to be made at a later date.
According to fiqh this does not amount to charging interest, since it is not a
lending transaction but a trading one.



C. Bai'salam (prepaid purchase):
This method is really the opposite of the murabaha. There the bank gives the
commodity first, and receives the money later. Here the bank pays the money
first and receives the commodity later, and is normally used to finance
agricultural products.

D. Istisnaa (manufacturing):
This is a contract to acquire goods on behalf of a third party where the price is
paid to the manufacturer in advance and the goods produced and delivered at
a later date. Ijara and ijara wa iqtina (leasing). Under this mode, the banks
buy the equipment or machinery and lease it out to their clients who may opt
to buy the items eventually, in which case the monthly payments will consist
of two components, i.e. rental for the use of the equipment and instalment
towards the purchases price.

E. Qard hasan (beneficence loans):
This is the zero return type of loan that the Holy Qura'n urges Muslims to
make available to those who need them. The borrower is obliged to repay
only the principal amount of the loan, but is permitted to add a margin at his
own discretion.

F. Islamic securities:
Islamic financial institutions often maintain an international Islamic equity
portfolio where the underlying assets comprise ordinary shares in well run
businesses, the productive activities of which exclude those on the prohibited
list (alcohol, pork, armaments) and financial service based on interest income.



2.4 DIFFERENCES BETWEEN CONVENTIONAL BANKING &
ISLAMIC BANKING

1. In a conventional bank, a customer is given finances by a contract of loan
where the bank is creditor and the customer is debtor. On the other hand in
Islamic banking, finances are given to a customer by a contract of sale i-e a
deferred sale contract. In this contract, either bank itself buys goods or
appoints the customer to buy on its behalf and later sells them to the clients
with a mark up (cost plus an agreed profit margin). Payment is done in
installments over a specific period of time.

2. Islamic banks earn their profit by trading and investment activities and this
profit can be said legitimate as it involves risk and efforts as compared to
conventional banks which earn their profit by financing the customers at a
fixed interest rate.

3. Participation in partnership business is the fundamental function of the
Islamic banks. So they have to understand their customer's business very
well. Whereas lending money and getting it back with compounding interest
is the fundamental function of the conventional banks.

4. The Islamic banks have no provision to charge any extra money from the
defaulters. Only small amount of compensation and these proceeds are given
to charity. On the contrary, conventional banks can charge additional money
(penalty and compounded interest) in case of defaulters.



5. The nature of Islamic banking is not simply lending the money as
experienced by a conventional bank, but it is involved in selling and buying
the commodity. Thus the selling price which is a cost price plus the profit
margin, which is the contracted amount. In conventional banking practice,
interest is regarded as the price of loan.

6. Profit amount agreed once between the customer and an Islamic bank
remains the same, e.g., in murabahah or cost plus profit is fixed at the time of
contract and must be agreed upon by the customer. If customer is unable to
pay on time, bank cannot ask for a higher price due to delay in settlement of
dues. While interest rate is also prefixed at the time of contract would be
either unchangeable or would change according to the Base Lending Rate
(BLR) which is monitored by the central Bank.

7. Islamic banks cannot remain unconcerned about the nature of the activity
for which they are financing. They cannot finance any business which is
against the teachings of Islam. While conventional banks dont have to follow
any limitations of religion and they may finance any profitable activity e.g., a
gambling casino or an alcoholic manufacturing industry etc.

8. Many of the services provided by conventional banks that are not related to
interest, are also performed by the Islamic banks in the same way e.g., letter
of credits, collections, foreign exchange and financial advising etc .



2.5 LIMITATIONS OF ISLAMIC BANKING

Islamic Banking is based on the concept of profit and loss sharing (PLS) is
theoretically superior to conventional banking from different angles. However
from the practical point of view things do not seem that rosy. In the over half-
a-decade of full-scale experience in implementing the PLS scheme the
problems have begun to show up.

I. Financing
There are four main areas where the Islamic banks find it difficult to finance
under the PLS scheme: a) participating in long-term low-yield projects, b)
financing the small businessman, c) granting non-participating loans to
running businesses, and d) financing government borrowing. Let us examine
them in turn.

a) Long-term projects
The term structure of investment by 20 Islamic Banks in 1988. It is clear that
less than 10 percent of the total assets go into medium- and long-term
investment There are no commonly accepted criteria for project evaluation
based on PLS partnerships. Each single case has to be treated separately with
utmost care and each has to be assessed and negotiated on its own merits.
Other obvious reasons are: a) such investments tie up capital for very long
periods, unlike in conventional banking where the capital is recovered in
regular instalments almost right from the beginning, and the uncertainty and
risk are that much higher, b) the longer the maturity of the project the longer
it takes to realize the returns and the banks therefore cannot pay a return to
their depositors as quick as the conventional banks can. Thus it is no wonder
that the banks are averse to such investments.



b) Small businesses
Small scale businesses form a major part of a countrys productive sector.
Besides, they form a greater number of the banks clientele. Yet it seems
difficult to provide them with the necessary. This has been particularly
relevant for the construction and service sectors, which have large share in the
gross domestic product (GDP). The service sector is made up of many small
producers for whom the banking sector has not been able to provide sufficient
financing. Many of these small producers, who traditionally were able to
obtain interest-based credit facilities on the basis of collateral, are now
finding it difficult to raise funds for their operations.

c) Running businesses
Running businesses frequently need short-term capital as well as working
capital and ready cash for miscellaneous on-the-spot purchases and sundry
expenses. This is the daily reality in the business world. Often the clients need
to have quick access to fresh funds for the immediate needs to prevent
possible delays in the projects implementation schedule. According to the set
regulations, it is not possible to bridge-finance such requirements and any
grant of financial assistance must be made on the basis of the projects
appraisal to determine type and terms and conditions of the scheme of
financing.

d) Government borrowing
In all countries the Government accounts for a major component of the
demand for credit -- both short-term and long-term. Unlike business loans
these borrowings are not always for investment purposes, nor for investment
in productive enterprises. Even when invested in productive enterprises they
are generally of a longer-term type and of low yield.



II. Legislation
Existing banking laws do not permit banks to engage directly in business
enterprises using depositors funds. But this is the basic asset acquiring
method of Islamic banks. Therefore new legislation and/or government
authorization are necessary to establish such banks. In Iran a comprehensive
legislation was passed to establish Islamic banks. In Pakistan the Central
Bank was authorized to take the necessary steps. In other countries either the
banks found ways of using existing regulations or were given special
accommodation. In all cases government intervention or active support was
necessary to establish Islamic banks.

III. Re-training of staff
The bank staff will have to acquire many new skills and learn new procedures
to operate the Islamic banking system. This is a time consuming process
which is aggravated by two other factors. One, the sheer number of persons
that need to be re-trained and, two, the additional staff that need to be
recruited and trained to carry out the increased work.

IV. Globalization of Financial Markets
This is the second change I mentioned in the beginning. Financial markets the
world over are integrated as never before. Money moves across national
boundaries without cost and instantaneously. The few remaining exceptions
are on the way out. In principle this change should be favorable to Islam
which never cared much for national boundaries. In practice however it does
pose problems for Islamic financial movement, for two different reasons.
Firstly the home base of this new trend is the Middle East and South and
South East Asia where the economies are small and financial system less
sophisticated than in the developed countries.


Secondly, Islamic financial institutions themselves suffer from smallness in
size and very few of them operate in more than one country as the major
players in the field do. The situation has changed with the entry of some
major conventional financial institutions into the field. But that has made it
harder for the older Islamic financial institutions, obliging them to consider
mergers and consolidation.
Globalization has increased the volatility of almost every financial variable,
especially the exchange rates. It has also reduced the efficacy of national
economic macro- management. The redress can only come through
international agreements curbing speculation and regulating the financial
markets. The insights of the Islamic financial movement relating to sharing
modes of finance, commodity-linked financing like murabaha, and reducing
the role of debt have great potential in this regard.

2.6 ISLAMIC BANKING IN INDIA

India is considered to be one of the most desired economies since its growing
rapidly with a legal framework which enables protection for the foreign
investors. The Islamic banking sector commands an asset base of $3trillion
across the world. It is commonly known as participatory banking in India and
it has shown its presence in the cooperative sector this new trend in banking
will help the poor and marginalized segments of the society, petty workers,
small farmers, skilled persons and women encouraging saving as well as
providing micro credit along with other macro banking operations. Thus
suitable amendments should be made in the Banking Act.



The Indian banking sector has opened up considerably in the past decade or
so and openness to interest-free banks is a logical next step. Islamic banking
is one way to ameliorate the disadvantaged classes. The potential benefits of
allowing Islamic banking include; decreased economic disparity between the
haves and the have nots, better integration, and consequently accelerated
economic growth. Even in the U.K. where the Muslim population is just 2 per
cent, there is a full-fledged conventional Islamic Bank with four branches.
Malaysia is the centre of Islamic Banking where against every conventional
bank there is an Islamic Bank. Interestingly, the nine per cent Chinese
population in Malaysia is also fulfilling their banking requirements by dealing
with the Islamic Banks. In India, which has a huge Muslim population, by
law cannot find Islamic Banks. Since it is difficult to form Islamic Bank, but
Islamic Investment is a major part of Islamic Banking Industry. Malaysia has
got not more than 200, whole of GCC has got not more than 300 companies.
Out of 6000 listed companies almost 4400 companies are Sharia compliant.
Some of the Islamic banking institutions(NBFC) in I ndia:

Al Ameen Islamic Financial & Investment Corp. (India) Ltd.,
Karnataka
Bank Muscat International (SOAG)
Al-Falah Investment Ltd

2.6.1 Major issues and constraints in Islamic banking:
The biggest issue which is a permanent hurdle for Islamic banks operating in
countries with interest-based banking is that they cannot function as banks
unless powers of issuing cheques are given to them.


They cannot be members of settlement/clearing house unless they accept two
conditions regarding their liabilities and assets like conventional banks that
have to keep fractional cash reserve with the central bank and statutory liquid
assets in their assets.
Thus banks in India have to maintain deposit account with the RBI over
which they get interest. The SLR includes government and approved
securities. A bank licensed by the RBI becomes part of the monetary system,
which means it can create money by deposit generation through deposit
acceptance. Since these assets are interest based, Islamic bank cannot hold
them. Consequently, the central bank cannot act as the lender of last resort
because such accommodation by the monetary authority is also interest based.
Islamic banks cannot interact with conventional banks based on principles of
interest. The last but not the least, Islamic banking has been constantly in
short-term and medium-term operations though some of them are undertaking
long-term finance also. It is understood that inability to evaluate projects
profitability has tended to act against investment financing. Some borrowers
frustrate the banks appraisal efforts as they are not reluctant to provide full
disclosures of their business. Moreover, the borrowers do not observe
business ethics which make it difficult to establish close bank-clientele
relationship a condition for successful Islamic banking. As a result a
number of Islamic banks have been closed during the recent years.

2.6.2 SWOT Analysis:

As per the SWOT analysis of Islamic Banking done below, it is clear that it
faces many challenges in India. Banks will have to come out of religion set up
and offer products of wider spectrum to wider audience.


Its a challenge to provide a solution that adheres to the basics of the Islamic
finance concept and at the same time remains flexible enough to meet the
demands of the changing environment. There is a need to advertise Islamic
banking so that it could be used by Non-Muslims as well.
STRENGTH
Islamic Banking will unequivocally ameliorate the deplorable condition of the
poor and marginalized segments of society. Banking products which comply
with Islamic law are becoming increasingly popular, not only in the Gulf
countries and far eastern states like Malaysia, but also in other developed
markets such as the United Kingdom. Reputed banks like Standard Chartered,
Citibank, HBSC are operating interest free windows in several West Asian
countries, Europe and USA. There is a huge potential market in India for
Islamic banking products.
We have seen the fall of giants in the world of financial sector like Lehman
Brothers in the aftermath of the US sub-prime mortgage crisis. Therefore, it is
of paramount importance to be strict about credit rating system, to circumvent
any chance of further bankruptcy. Since Islamic banking adheres to strict
credit rating system and prohibits indebted economic agents to avail more
debt finance, it could save our financial and economic enterprises from
bankruptcy. Interest is strictly proscribed in Islamic banking. Principles of
equity finance abhor financing the indebted enterprises thereby arresting the
chances of bankruptcy to great extends. Under Islamic banking, equity
finance needs cost yield and pre-rating analysis of projects. It thus
considerably subdues the mindless competition in financial sector to get more
credit shares and tends to provide stability in the financial market.


Islamic banks are unaffected by the subprime mortgage crisis. In fact, now
many non-Muslim countries are turning up to Islamic banking as they are
immune against such crisis due to inherent business ethics within Islamic
banking.

Moreover, Islamic banking helps the weaker and hapless section of the
society through various financial products. Islamic banking finances (through
its Joint ventures, partnerships and leasing)are provided by investors or banks
to the borrowers with a condition that financial risk is to be borne by the
investors, and other risks to be borne by the borrower.
The high powered Raghuram Rajan Committee draft Report as released on
7th April 2008, strongly suggested interest-free banking as a part of
recommendations made for financial sector reforms. The Committee
postulates that interest free banking is another area that falls broadly in the
ambit of financial infrastructure. Certain faiths prohibit the use of financial
instruments that pay interest.
WEAKNESS
Indian banking laws do not explicitly prohibit Islamic banking but there are
provisions that make Islamic banking almost an unviable option. The
financial institutions in India comprises of Banks and Non Banking Financial
Institutions. Banks in India are governed through Banking Regulation Act
1949, Reserve Bank of India Act 1934, Negotiable Instruments Act 1881, and
Co-operative Societies Act 1961.
Certain provisions regarding this are mentioned below:


Section 5 (b) and 5 (c) of the Banking Regulation Act, 1949 prohibit
the banks to invest on Profit Loss Sharing basis -the very basis of
Islamic banking.
Section 8 of the Banking Regulations Act (BR Act, 1949) reads, No
banking company shall directly or indirectly deal in buying or selling
or bartering of goods
Section 9 of the Banking Regulations Act prohibits bank to use any sort
of immovable property apart from private use this is against Ijarah for
home finance
Section 21 of the Banking Regulations Act requires payment of Interest
which is against Sharia.
As regards to partnership by Islamic banks in a firm, the bank has to make
sure that the manager does not avoid his responsibilities or obtain other non-
pecuniary benefits at the expense of non-participating partners and ensure the
veracity of the profit statements. Monitoring of data about firms in which
Islamic bank invests would involve exorbitant cost.
Islamic banking needs to introduce corporate governance with transparent
accounting standards. It needs to perform detailed evaluation before
embarking Profit Loss Sharing Scheme, which demand a pool of highly
trained professionals. The imparting of professional training is costly.
Detailed principles are still to be laid down and techniques and procedures
evolved to carry them out. It is only after the satisfactory achievement of
these that proper training can begin.
Among the other disincentives from the borrowers point of view are the need
to disclose his accounts to the bank if he were to borrow on the Profit Loss
Sharing basis. However, many small-time businessmen do not keep any
accounts, leave alone proper accounts.


And large conglomerates do not like to disclose their real accounts to
anybody. The widespread lack of business ethics among certain business
community will be another major hurdle in the path of Islamic banking in
India.
The practices in use by the Islamic banks have evoked questions of morality.
Some critics view Sukuk(Islamic Bond) as unIslamic in nature. Others
criticize that financing through the purchase of clients property with a buy-
back agreement and sale of goods to clients on a mark-up, involved the least
risk and are closest to the old interest-based operations.
Bai muajjal (sale with deferred payment) and Murabaha (cost-plus
financing) are permitted in the Sharia under certain conditions. What is being
done in many countries are fictitious deals which ensure a predetermined
profit to the bank without actually dealing in goods or sharing any real risk.
This is against the letter and spirit of Sharia.
OPPORTUNITY
India with a 20% Muslim population, the highest in a non-Islamic country
and second highest in the world offers huge opportunities to exploit. The size
of the market will be very large as the Indian population is above 120 crore
and Muslim population itself is about 20 crore and majority of them, in the
name of religious faith, are looking for interest free banking and finance.
It is pertinent to mention here that Islamic banking is not meant for Muslims
only but non Muslims may also avail the benefit of it. And it is feasible to
have a parallel banking system based on Sharia along with a conventional
one.


While Sharia compliant investment avenues are now becoming available in
most countries, India has not seen large-scale development. To estimate the
scope of Islamic investment opportunities in the Indian stock market, it is
imperative to examine stocks that conform to Islamic Shariah principles
Out of 6,000 BSE listed companies, approximately 4,200 are Sharia
compliant.The market capitalization of these stocks accounts for
approximately 61% of the total market capitalization of companies listed on
BSE. This figure is higher even when compared with a number of
predominantly Islamic countries such as Malaysia, Pakistan and Bahrain. In
fact, the growth in the market capitalization of these stocks was more
impressive than that of the non-Sharia compliant stocks.The software, drugs
and pharmaceuticals and automobile ancillaries sector were the largest sectors
among the Sharia compliant stocks. They constitute about 36% of the total
Sharia compliant stocks on NSE. Further on examining the BSE 500 the
market capitalization of the 321 Sharia compliant companies hovered
between 48% and 50% of the total BSE 500 market capitalization.
Another opportunity is mutual fund which is based on 100% equity. These
funds are invested in different sectors like IT, automobile telecommunication,
cement. In fact, Tata Mutual Fund made a pioneering attempt when, at the
instance of the Barkat and some other Islamic financial group, it launched
Tata Core Sector Equity Fund in 1996. This scheme was specially tailored
keeping in view the Muslims inhibition of dealing with interest bearing and
haram investments. This scheme surprised many by being able to raise Rs.
230 million from the public.
THREATS
Islamic banking could be a huge political issue. Certain parties might abhor
the use of the word Islamic and could term it as anti-Indian.


They might argue that the very concept of Sharia banking would go against
the secular fabric of our country. We are already facing problems pertaining
to Muslim Personnel Law and trying to implement Uniform Civil Code.
Therefore, at this juncture, if we introduce Islamic banking in India, it will
create more problems than solving the issue. Moreover, it may bring financial
segregation in the economy. The compartmentalization of Sharia compliant
and Non Sharia Compliant banking might be used by certain vested interest to
communalize the finance sector in India.

2.7 CONCLUSION
Islamic banking is at an incipient stage. The existing legal framework does
not permit Islamic Banking in India. Only selective activities like equity
investment is possible, while trade finance aspects like taking title to goods is
not possible. A lot of amendments need to be carried out in the prevalent legal
set up. Appropriate models need to be selected and implemented to suit
societys diverse financial needs. And it is advised to refer Islamic Banking
as Interest Free Banking so that it could be looked through the broad
economic kaleidoscope and not a narrow religious prism.

_______________________________________



3.1 INTRODUCTION

The Indian banking has finally worked up to the competitive dynamics of the
new Indian market and is addressing the relevant issues to take on the
multifarious challenges of globalization. Banks that employ IT solutions are
perceived to be futuristic and proactive players capable of meeting the
multifarious requirements of the large customer base. Private Banks have
been fast on the uptake and are reorienting their strategies using the internet
as a medium The Internet has emerged as the new and challenging frontier of
marketing with the conventional physical world tenets being just as
applicable like in any other marketing medium.

The Indian banking industry is currently termed as strong, having weathered
the global economic slowdown and showing good numbers with strong
support flowing in from the Reserve Bank of India (RBI) measures.
Furthermore, a report "Opportunities in Indian Banking Sector", by market
research company, RNCOS, forecasts that the Indian banking sector will
grow at a healthy compound annual growth rate (CAGR) of around 23.3 per
cent till 2011.

Banking, financial services and insurance (BFSI), together account for 38 per
cent of India's outsourcing industry (worth US$ 47.8 billion in 2007).


According to a report by McKinsey and NASSCOM, India has the potential
to process 30 per cent of the banking transactions in the US by the year 2010.
Outsourcing by the BFSI to India is expected to grow at an annual rate of 30
35 per cent. According to a study by Dun & Bradstreet (an international
research body)"India's Top Banks 2008"there has been a significant
growth in the banking infrastructure. Taking into account all banks in India,
there are overall 56,640 branches or offices, 893,356 employees and 27,088
ATMs. Public sector banks made up a large chunk of the infrastructure, with
87.7 per cent of all offices, 82 per cent of staff and 60.3 per cent of all ATMs.
According to the RBI, Indian financial markets have generally remained
orderly during 2008-09. In view of the tight liquidity conditions in the
domestic money markets in September 2008, the Reserve Bank announced a
series of measures beginning September 16, 2008. Thus, the average call rate
which was at 10.52 per cent declined to 7.57 per cent in November 2008
under the impact of these measures.
Measures aimed at expanding the rupee liquidity, included significant
reduction in the cash reserve ratio (CRR), reduction of the statutory liquidity
ratio (SLR), opening a special repo window under the liquidity adjustment
facility (LAF) for banks for on-lending to the non-banking financial
companies (NBFCs), housing finance companies (HFCs) and mutual funds
(MFs), and extending a special refinance facility, which banks could access
without any collateral.


Banking capital (net) amounted to US$ 4.8 billion in April-September 2008
as compared with US$ 5.7 billion in April-September 2007. Among the
components of banking capital, non-resident Indian (NRI) deposits witnessed
a net inflow of US$ 1.1 billion in April-September 2008, a turnaround from
net outflow of US$ 78 million in April-September 2007.
The reserve money lying with the RBI as on November 21, 2008 as per the
January 2009 bulletin, is a total amount of US$ 179.28 billion and RBIs
credit to the commercial sector stood at US$ 3.65 billion. Further, banks in
India put up strong growth and profit numbers in the October-end-December
2008 period owing to high credit growth and easing of yield on government
bonds. Top Indian banks have increased their earnings by almost 40 per cent
year-on-year for the same period. According to latest Reserve Bank of India
(RBI) data, bank credit grew by 24.6 per cent year-on-year as of December
19, 2008. The resulting credit growth was even better at 41 per cent during
the April-end-December 2008 period. Deposits grew by 20.6 per cent as of
December 19, 2008.
The growth in advances reflects that the net interest income (NIM) too would
indicate higher growth rate. RBI has taken a number of steps to lower the cost
of credit in this quarter like cutting cash reserve ratio (CRR), the amount of
funds banks have to keep on deposit with it, repo and reverse repo rate.


The CRR rate, which had been reduced in December 2008, to 5.50 per cent,
repo rate to 6.50 and reverse repo rate to 5.00, were further reduced CRR to
5 per cent, (its lending rate) repo rate to 5.5 per cent and reverse repo, at
which it absorbs cash from the banking system, to 4 per cent in January 2009.
Responding to these measures, banks have cut the prime lending rates (PLR).
Further, according to several brokerage research teams, NIM may remain
stable in the last quarter. For instance, a Motilal Oswal report on earnings
preview reveals, "We expect margins to remain stable despite the PLR cut of
125-150 basis points (75 bps w.e.f January 1, 2009), as the banks have reaped
the benefit of CRR cut (350 bps in December quarter) and have demonstrated
their pricing power to corporate.
" According to brokerage Prabhudas Lilladhers preview report, among the
banks, SBI, Bank of Baroda and Union Bank stand to gain the most on
account of mark-to-market (MTM) reversals.Banks however, have to face the
challenge of rising non-performing assets (NPAs) owing to the slowdown in
exports and industrial production. Also, RBI has taken steps like one-time
restructuring of real estate loans and second-time restructuring of loans given
to other sectors to counter the NPA scenario.



3.2 SCOPE OF BANKING IN INDIA

The financial sector in India has become stronger in terms of capital and the
number of customers. It has become globally competitive and diverse aiming,
at higher productivity and efficiency. Exposure to worldwide competition and
deregulation in Indian financial sector has led to the emergence of better
quality products and services. Reforms have changed the face of Indian
banking and finance. The banking sector has improved manifolds in terms of
capital adequacy, asset classification, profitability, income recognition,
provisioning, exposure limits, investment fluctuation reserve, risk
management, etc.

Diversifying into investment banking, insurance, credit cards, depository
services, mortgage financing, securitization has increased revenues. As large
numbers of players in various fields enter the market, competition would be
intensified by mutual funds, Non Banking Finance Corporations (NBFCs),
post offices, etc. from both domestic and foreign players. All this would lead
to increased sophistication and technology in the sector. Corporate
governance would come into the picture and other financial institutions would
have to reach global standards.


Also the limit for FDI in private banks is increased to 74% and the limit for
FII is 49%. There are many challenges ahead for the banking sector such as
technology, consumer satisfaction, corporate governance, risk management,
etc. and they are redefining their priorities, which are now focused on cost
reduction, product differentiation and customer centric services. Some of the
major players in this sector are HDFC, ICICI, HSBC, State Bank of India,
Punjab National Bank, Ing Vysya, ABN Amro Bank, Centurion Bank, City
Bank, etc.

3.3 GROWTH OF BANKING IN INDIA

HDFC Bank and Axis Bank continue to remain as leaders of the private
sector banks. Both the banks have maintained the advances growth and NIM.
SBI, Punjab National Bank, Bank of India and Union Bank are expected to
lead among PSU Banks.
The State Bank of India is planning to open 1,000 new branches across the
country to cover 100,000 villages in the coming FY 2009-10, according to the
bank Chairman, Mr. O P Bhatt.
The bank had decided to rope in 300 new customers every year for each
branch using initiatives. According to Mr. Bhatt, the bank could get a record
US$ 5.54 billion during December 2008, the highest amount collected by any
bank in the country.


Further, public sector banks (PSBs) on January 12, 2009 also decided to
lower interest rates on bulk deposits and to offer a maximum rate of 7.5 per
cent for one-year maturity. Earlier, on January 1, banks had lowered the
interest rates on bulk deposits from 9.5 per cent to 8.5 per cent.
According to the latest RBI data, growth in broad money (M3), year-on-year
(y-o-y), was 19.6 per cent (US$ 151.04 billion) on January 2, 2009 lower than
22.6 per cent (US$ 141.82 billion) a year ago.
Aggregate deposits of banks, year-on-year, expanded 20.2 per cent (US$
133.08 billion) on January 2, 2009 as compared with 24.0 per cent (US$
127.49 billion) a year ago.
The growth in bank credit continued to remain high. Non-food credit by
scheduled commercial banks (SCBs) was 23.9 per cent (US$ 102.78 billion),
year-on-year, as on January 2, 2009 from 22.0 per cent (US$ 77.79 billion) a
year ago.
Scheduled commercial banks credit to the commercial sector expanded by
27.0 per cent (year-on-year) as on November 21, 2008, as compared with
23.1 per cent a year ago. Non-food credit of scheduled commercial banks
expanded by 26.9 per cent, year-on-year, as on November 21, 2008, higher
than 23.7 per cent a year ago.
According to earlier RBI data, for the third quarter (September 26-December
27, 2008), total bank credit was up US$ 21.91 billion compared with a growth
of US$ 22.91 billion in the same period a year ago. In the preceding quarter,


credit had risen by US$ 26.50 billion. RBI data for deposits shows that for the
Oct-end December 31, 2008 period, although deposit growth has slowed to
US$ 25.99 billion against US$ 33.18 billion in the April-end to September,
2008 period, it was still stronger in the December 31 quarter period, 2008, as
compared to the year-ago quarter when absolute growth was US$ 16.37
billion.
Net banking capital amounted to US$ 4.8 billion in April-September 2008 as
compared with US$ 5.7 billion in April-September 2007. Accounting for a
part of banking capital, non-resident Indian (NRI) deposits showed a net
inflow of US $ 1.1 billion in April-September 2008, increasing from net
outflow of US$ 78 million in April-September 2007.
Lending by banks also rose more than 76 per cent to Rs 2,80,000 crore (US$
57.26 billion) during April-November 2008-09 from the same period a year
ago, according to data available with the Reserve Bank of India (RBI).
The Reserve Bank of India on January 21, 2009 fixed the Reference rate for
the US currency at Rs 48.93 per dollar and the single European unit at Rs
63.70 per euro from Rs 49.12 per dollar and Rs 63.61 per euro, respectively.

On December 8, 2008, the repo rate and the reverse repo rate were reduced by
100 basis points each to 6.5 per cent and 5.0 per cent, respectively. In January
2009, the CRR has been further reduced to 5 per cent, repo rate to 5.5 per cent
and reverse repo to 4 per cent.


3.4 OPPORTUNITIES AHEAD

Tap the Domestic Potentials:
The countrys domestic savings today amount to approx. Rs. 4,00,000 Crores
per year. This is expected to increase to over Rs. 10,00,000 Crores per year
over the next 10 years, as our GDP increases from $ 400 billion to over a
trillion dollars. The penetration of banking channels will have to increase in
geometrical progression, to help fulfill Indias aspirations of becoming an
economic superpower in the 21st century.

Improve Productivity through Updating Technology:
Technology is actually the enabler, which can help the public sector banks
overcome their natural limitations, improve productivity and efficiency,
reduce transaction, processing and other costs, enhance the quality of service,
and lead to increased access to their customers.

Convert ATMs to Service Centers:
ATMs at present are just cash dispensing machines. They can be used to
deliver a whole range of services from banking services, ticketing services,
and retailing services. ATMs can be made into smart ATMs - using
biometrics, to recognize customers by their voice, face, fingerprints or iris.


In short, the new generation ATMs may be made into service retailing ports.
This will change the very face of banking as well as retailing. Similar
innovations can be introduced in various aspects like tele banking, home
banking etc. If our banks acquire the global competency they now have
opportunities expand their business on a quid pro quo basis in other countries.

3.5 CHALLENGES OF BANKING SECTOR

The banking industry in India is undergoing a major transformation due to
changes in economic conditions and continuous deregulation. These multiple
changes happening one after other has a ripple effect on a bank trying to
graduate from completely regulated sellers market to completed deregulated
customers market.

Deregulation:
This continuous deregulation has made the Banking market extremely
competitive with greater autonomy, operational flexibility, and decontrolled
interest rate and liberalized norms for foreign exchange. The deregulation of
the industry coupled with decontrol in interest rates has led to entry of a
number of players in the banking industry. At the same time reduced
corporate credit off take thanks to sluggish economy has resulted in large
number of competitors battling for the same pie.


Efficiency:
This in turn has made it necessary to look for efficiencies in the business.
Banks need to access low cost funds and simultaneously improve the
efficiency. The banks are facing pricing pressure, squeeze on spread and have
to give thrust on retail assets.
Diffused Customer loyalty:
This will definitely impact Customer preferences, as they are bound to react
to the value added offerings. Customers have become demanding and the
loyalties are diffused. There are multiple choices; the wallet share is reduced
per bank with demand on flexibility and customization. Given the relatively
low switching costs; customer retention calls for customized service and
hassle free, flawless service delivery.

Misaligned mindset:
These changes are creating challenges, as employees are made to adapt to
changing conditions. There is resistance to change from employees and the
Seller market mindset is yet to be changed coupled with Fear of uncertainty
and Control orientation. Acceptance of technology is slowly creeping in but
the utilization is not maximized.


Competency Gap:
Placing the right skill at the right place will determine success. The
competency gap needs to be addressed simultaneously otherwise there will be
missed opportunities. The focus of people will be on doing work but not
providing solutions, on escalating problems rather than solving them and on
disposing customers instead of using the opportunity to cross sell.
Competition in retail banking:
The entry of new generation private sector banks has changed the entire
scenario. Earlier the household savings went into banks and the banks then
lent out money to corporate. Now they need to sell banking. The retail
segment, which was earlier ignored, is now the most important of the lot, with
the banks jumping over one another to give out loans. The consumer has
never been so lucky with so many banks offering so many products to choose
from. With supply far exceeding demand it has been a race to the bottom,
with the banks undercutting one another. A lot of foreign banks have already
burnt their fingers in the retail game and have now decided to get out of a few
retail segments completely. PSBs need to figure out the means to generate
profitable business from this segment in the days to come.



3.6 PEST ANALYSIS

A. Political factors:
Indian economy is not an instable economy but definitely the nature of the
government has an impact on the various policies that get framed from time
to time. The Reserve Bank of India is an autonomous body, with minimal
pressure from the government that takes decisions regarding the banking
operations and its monetary policy. It has given top priority for maintaining
the price stability and for sustaining the rate of growth of the economy.

Earlier foreign players were not allowed in the country for operations but now
the Indian government encourages foreign players in the banking sector and
this has lead to the betterment of the services and products that are available
in the market. . In terms of quality of assets and capital adequacy, Indian
banks are considered to have clean, strong and transparent balance sheets
relative to other banks in comparable economies in its region

As per the latest updates it is said that Indian Government would allow 100%
FDI in banking sector by 2009. Moreover the rules are being relaxed as
compared to the earlier period as seen in March 2006, the Reserve Bank of
India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank


(A private sector bank) to 10%. This is the first time an investor has been
allowed to hold more than 5% in a private sector bank since the RBI
announced norms in 2005 that any stake exceeding 5% in the private sector
banks would need to be vetted by them.

B. Economic factors:
Indian Economy has been experiencing an impressive growth in the recent
years. The growth rate in output and employment has put some pressure on
the level of inflation. The Whole Sell Prices Index (WPI) in the country as on
6th Jan 2007 has reached at 6.1 Percent. The present level of India inflation is
considered as a challenge to the growing potentiality of the Indian Economy.
The Gross Domestic Product in the country increased at an impressive rate of
9.2 percent per annum. The GDP Growth was mainly led by the fast rising
industrial production as well as the growth in the services sector.
The Tax Collections of the Government has increased, particularly the taxes
such as Income Tax, Corporation Tax and the Service Tax. Tax collections
from the new taxes such as Fringe Benefit Tax and Cash Transaction Tax
have also increased With a GDP is 8.4% for 2007 and a growth rate of 8%
over the past three years it is being one of the fastest growing economies of
the world.



C. Social Factors:
India is the second largest populated country with a population growth of
1.8%.Geographically its a large country with diverse culture and traditions.
India is a country of diversities in itself. The cost of living of people has been
increasing as compared to the earlier period of time especially with the boom
of IT sector and the private sector. India has many languages and cultures in
itself and the behavior of the consumers in that area depends on these factors
that would be bonding them.

D. Technological Factors:
India is said to have one of the booming IT sector in the recent past. India
claims to be producers of the best intellects in technology. Apart from all this
India implemented technology in almost all the sectors. In the banking sector
there has been a lot of technological updations like mobile banking, internet
banking, ATMs etc.

The Software Packages for Banking Applications in India had their
beginnings in the middle of 80s, when the Banks, spurred on by RBI and the
Rangarajan Committee Report, started computerising the branches in a
limited manner.



The arrival of foreign and private banks with their superior state-of-the-art
technology-based services pushed Indian Banks also to follow suit by going
in for the latest technologies so as to meet the threat of competition and retain
customer base.

The evolution of IT services outsourcing in the Indian banks has presently
moved on to the level of Facilities Management (FM). Banks now looking at
business process management (BPM) to increase returns on investment,
improve customer relationship management (CRM) and employee
productivity.

For, these entities sustaining long-term customer relationship management
(CRM) has become a challenge with almost everyone in the market with
similar products.

______________________________________



Analysis, interpretation and inference of data are the central steps in the
research process. The goal of analysis is to summarize the collected data in
such a way that they provide answer to the question that trigged the research.
It is also a method of finding meaning and relationship between given facts to
interpret and inference the same. In interpretation is search for broader
meaning of research findings. An analysis is not complete without
interpretation and inference.

The chapter aims at presenting the result of study in a simple descriptive
measure in the form of simple tables, and charts. It also aims at picking out
the essential results of study. The entire chapter has been divided in to several
sub heads so as to facilitate the understanding of studies.

This is an attempt to analyze, interpret and infer the data gathered from the
respondents. The questionnaire is highly concentrated on Bankers and
Muslims. And it also considered the other respondents say, Students, Govt.
employees, Pvt. Employees, Research Scholars, NRIs.



Table 4.1: Gender of the respondents

Interpretation & Inference:
It can be interpreted from the above table that 70% of respondents are male
and 30% of the respondents are female.
Thus we can infer from the study that majority of the respondents are male
members. The above analysis can also be shown in the form of following
Chart 4.1:

70%
30%
Male Female
PARTICULARS FREQUENCY PERCENTAGE
Male 42 70
Female 18 30
Total
60 100%


Table 4.2: Educational qualification of the respondents
P U 0 __
U G 9 15
P G 39 65
Other 12 20
Total 60 100%

It can be interpreted from the above table that 65% of respondents are post
graduates, 15% of respondents are under graduates, 20% of respondents are
belong to other category which include CA & Lawyers.
Thus we can infer from the study that majority of respondents 80% are
graduates and post graduates, consist of Bankers & students. The above
analysis can also be substantiated with the help of following Chart 4.2:

0%
15%
65%
20%
PU UG PG Other


Table 4.3: Occupation of the respondents
Bankers 12 20
Students 15 25
Research Scholars 6 10
Lecturers 9 15
Service/Business Sector 12 20
NRIs 6 10%
Total 60 100%

It can be interpreted from the above table that 20% of the Respondents are
Bankers & service or business men; 10% of the respondents are research
scholars & NRIs; 15% are Lectures and 25% of the respondents are Students.
Thus we can infer from the study that, the study is equally concentrated on all
sectors. The above analysis can also be substantiated with the help of
following Chart 4.3:

20%
25%
10%
15%
20%
10%
Bankers Students Research
Scholars
Lecturers Service/
Business Sector
NRIs


Table 4.4: Respondents awareness about Islamic Banking

Yes 60 100
No 0 ----
Total
60 100%

It can be interpreted from the above table that, all respondents are aware
about the concept of Islamic Banking.
Thus we can infer from the study that, the respondents are familiar with this
topic because the questionnaire is placed only to those respondents who are
well aware to the topic. The above analysis can also be substantiated with the
help of following Chart 4.4:

0%
20%
40%
60%
80%
100%
120%
Yes No


Table 4.5: Opinion on - Islamic Banking System is better than
Conventional Banking System

Yes/Agree 27 45
NO/ Disagree 21 35
Cant say/ Neutral 12 20
Total 60 100%

It can be interpreted from the above table that, 45% of the respondents feels
that Islamic banking is better than Conventional banking, where as 35% said
No & 20% said cant say.
Thus we can infer from the study that, most of the respondents like Islamic
banking because of interest free transaction. The above analysis can also be
substantiated with the help of following Chart 4.5:

0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Yes No Can't say


Table 4.6: Economic welfare through Islamic bank

Yes/Agree 30 50
NO/ Disagree 24 40
Total 60 100%

It can be interpreted from the above table that, 50% of the respondents feels
that Islamic banking will lead to economic welfare, where as 40% said No &
10% said cant say.
Thus we can infer from the study that, it will bring economic welfare because
Islamic banks not invest its fund in prohibited (Haram) products. The above
analysis can also be substantiated with the help of following Chart 4.6:

50%
40%
10%
yes/agree
no/disagree
cant say/neutral


Table 4.7: Present Islamic banking is true to the teachings of Islam
Yes/Agree 24 40
NO/ Disagree 6 10
Total 60 100%

It can be interpreted from the above table that, 50% of the respondents are
neutral regarding to the question, where as 40% said yes & 10% said no.
Thus we can infer from the study that, there is lack of knowledge regarding to
the teaching of Islam among the respondents. The above analysis can also be

yes/agree
no/disagree
cant say/neutral
40
10
50


Table 4.8: Islamic banks to be governed by Shariah regulations

Yes/Agree 18 30
NO/ Disagree 36 60
Total 60 100%

It can be interpreted from the above table that, 60% of the respondents says
that Islamic banking not to be governed by shariah regulations, where as 30%
of respondents are agreed to the statement & 10% are neutral.
Thus we can infer from the study that, Islamic banking not to be governed by
Shariah regulation and it must be governed by Banking Regulation Act by
RBI. The above analysis can also be substantiated with the help of following
Chart 4.8:

0
10
20
30
40
50
60
70
Yes/agree no/disagree cant say/ neutral


Table 4.9: Will it Charge interest through indirect way

Yes/Agree 24 40
NO/ Disagree 18 30
Total 60 100%

that Islamic banking charge interest through indirect way, where as 30% of
respondents are disagreed to the statement & 30% are neutral.
Thus we can infer from the study that, Islamic banking may charge interest
through indirect way by misguiding its customer. The above analysis can also
be substantiated with the help of following Chart 4.9:

0%
5%
10%
15%
20%
25%
30%
35%
40%
Yes/agree No Can't say


Table 4.10: Conventional banks can also offer services provided by
Islamic banks

Yes/Agree 33 55
NO/ Disagree 12 20
Total 60 100%

that Conventional banks can also provide services of Islamic banks, where as
20% of respondents are disagreed to the statement & 25% are neutral.
Thus we can infer from the study that, The Conventional banks can also offer
services of Islamic banks by introducing separate Islamic financial section in
each of its branches. The above analysis can also be substantiated with the
help of following Chart 4.10:

55%
20%
25%
Yes/agree No/disagree Cant say/Neutral


Table 4.11: Removing societys inequality and improving standard of
living

Yes/Agree 18 30
NO/ Disagree 27 45
Total 60 100%

that Islamic banks will not remove inequality and improve standard of living,
where as 30% of respondents are agreed to the statement & 25% are neutral.
Thus we can infer from the study that, The Islamic banks may not remove and
improving standard of living in the society. The above analysis can also be

30%
45%
25%
Yes/Agree
No/disagre
Cant say/Netral


Table 4.12: Major Risk involved in Islamic banking
Increase anti-national activities
& leads to social conflicts
15 25
Confuse in banking system 18 30
Against to the constitution &
banking act
12 20
Time consuming 12 20
Other Risk 3 5
Total 60 100%

It can be interpreted from the above table that, 30% of the respondents says that the
Islamic banking system is most confusing one, 25% of the respondents say that it will
increase anti-national activities and leads to social conflicts, 20% of the respondents say it
is against to the countries constitution and against to banking regulation act, 20% says it is
time consuming, 5% of the respondents gave other risks.
Thus we can infer from the study that, majority of the respondents say it is confusing
system of banking. The above analysis can also be substantiated with the help of following
Chart 4.12:

25%
30%
20%
20%
5%
Increase anti-national
activities & leads to social
conflicts
Confuse in banking system
Against to the constitution
& banking act
Time consuming
Other Risk


Table 4.13: Benefits from Islamic banking
Huge cash inflow 15 25
Economic benefit to the nation 9 15
Benefit to the particular class
of people
24 40
Reforming the existing
banking system
9 15
Other benefits 3 5
Total 60 100%

It can be interpreted from the above table that, 40% of the respondents says that the
Islamic banking will benefits the particular class of people, 25% of the respondents say
that it will leads to huge cash inflow, 15% of the respondents say it is benefit to the
nations economy, 15% says it will reform the existing banking system, 5% of the
respondents stated other benefits.
Thus we can infer from the study that, majority of the respondents say that the particular
class of people will be benefited from Islamic banking system. The above analysis can also

Huge cash inflow
Economic benefit to the nation
Benefit to the particular class of
people
Reforming the existing banking
system
Other benefits


Table 4.14: India is ready for the implementation of Islamic banking

Yes/Agree 12 20
NO/ Disagree 30 50
Total 60 100%

that India is not ready for the implementation of Islamic banks, where as 20%
of respondents say yes & 25% are neutral.
Thus we can infer from the study that, India is not ready to implement the
Islamic banks because of the various factors. The above analysis can also be
Yes/agree No/disagree Cant say/Neutral
20%
50%
30%


Table 4.15: Will you use Islamic banking services in future

Yes/Agree 12 20
NO/ Disagree 30 50
Total 60 100%

that they will not use the Islamic banking services in future; where as 20% of
respondents say they will use it & 25% are neutral.
Thus we can infer from the study that, majority of the respondents are not
ready to use Islamic banking services in future. The above analysis can also

Yes/Agree
No/Disagree
Cant say/Neutral


5.1 SUMMARY OF THE FINDINGS
This analysis of data of study reveals certainty significant aspects, which are
termed to be the major findings that were during analysis of data. The major
findings are as follows:

In this study it was found that the respondents are well aware to the
concept of Islamic banking.

In this study it was found that, 45% of respondents feel that Islamic
banking is better that conventional banking only because of its interest
free loans.

It was found that, 50% of the respondents are agree that Islamic
banking will lead to economic welfare through huge cash inflow to the
nation

It was found that, there is lack of knowledge regarding to the true
teachings of Islam, among the respondents.

It was found that, 60% of respondents are against to the complete
control of Islamic banking by Shariah law. They feel that the Islamic
banking to be governed and controlled by Banking Regulation Act of
RBI.



In this study it was found that, the majority of the respondents feel that
the Islamic banking will charge interest through indirect way, by
misguiding its customers.

In this study it was found that, 55% of respondents feel that
conventional banks can also offer the services provided by Islamic
banking by introducing separate Islamic financial section in each of its
branches.

In this study it was found that, Islamic banking will not remove
inequality and improve the standard of living, as whole.

In this study it was found that, Islamic banking will confuse the entire
banking system, increase anti-national activities & leads to social
conflicts. It also found that, Islamic banking is against to the
constitution of India and to the Banking Regulation Act of RBI.

In this study it was found that, Islamic banking will benefits to the
particular class of people and also leads to the economic benefit of the
nation through huge cash inflow to the nation.

In this study it was found that, majority of the respondents feels that
India is not ready for the implementation of Islamic banking.

In this study it was found that, 50% of the respondents say that they
will not use the Islamic banking services in future.


5.2 SUGGESTIONS
As Islamic banking in infancy stage, the government should not allow the
FDI in Islamic banking sector.

Instead of separate Islamic bank, the conventional banks can provide various
Islamic banking products by introducing separate Islamic financial section or
cell in each of its branches.

Islamic financial section of conventional banks to be governed and
controlled by RBI with guidance of Shariah law.

The banks that plan to implement Islamic banking in their verticals should
first create awareness about the various products in Islamic banking and
project it as a secular product.

The name Islamic banking creates a negative impact on many sections in the
society and as Participatory Banking or Interest Free Banking can be used
instead of Islamic banking so that it could be looked through the broad

Instead of Mudarabah (profit & loss sharing) and Murabahah (cost plus),
Qard Hassan/Qardul Hassan (good loan/ benevolent loan) system must be
followed, since it is the one type of loan that truly does not compensate the
time value of money.


5.3 CONCLUSION
Islamic banking is at an incipient stage. The existing legal framework does
not permit Islamic Banking. Only selective activities like equity investment is
possible, while trade finance aspects like taking title to goods is not possible.
A lot of amendments need to be carried out in the prevalent legal set up.
Appropriate models need to be selected and implemented to suit societys
diverse financial needs.
Islamic Bank of Britain, Islamic banks of Thailand, Singapore and USA may
be glaring models for Indian bankers. The reputed domestic and international
banks along with the collaboration of RBI should be involved in the process
of determining and implementing Islamic Banking products.
The name Islamic banking creates a negative impact on many sections in the
society and as Participatory Banking or Interest Free Banking can be
used instead of Islamic banking so that it could be looked through the broad
Islamic banking is an idea whose time has come. It is the Indian Government
recognized this significant opportunity.
________________________________________



Books

Muhammad Nejatullah Siddiqi (2004), Riba, Bank Interest, and The Rationale
of Its Prohibition
Muhammad Nejatullah Siddiqi Banking Without Interest

Journals

Khan Omar, A proposed introduction of Islamic banks in India, International Journal
of Islamic Financial Services Vol. 5 No.4
ICFAI Journal

Indian Journal of Finance

Magazines
The Week, June issue 2006
Business Line, March issue 2005

Website references

www.financeinislam.com
www.wikepedia.com
www.journalofislamicfinancialservices.com
www.infosys.com
www.surveymoney.com
www.survio.com
www.studymode.com

YouTube

1. What Is Your Opinion On Islamic Banking? Sheikh Imran Hosein
(http://www.youtube.com/watch?v=W1zbdg64nAI )

2. Dr Subramanian Swamy explains Islamic Banking in India etc.
(http://www.youtube.com/watch?v=fTyFmlQOmIU)


Dear Respondent,

I am RANJAN B U Pursuing M.Com in Dept. of commerce at Mangalore
University, mangalagangothri. Im conducting an academic dissertation
project on the topic INTRODUCTION TO THE CONCEPT OF
ISLAMIC BANKING AN INDIAN PERCEPTIVE. My humble request
you to spend your precious time in answering the questionnaire. Your
contribution in this regard will be highly appreciated & will be acknowledged
at the time of submission of report.

NAME: _______________________________________________

ADDRESS:_____________________________________________

1. Gender: a) Male b) Female

2. Educational Qualification:
a) P U b) U G c) P G d) Other

3. Occupation:
a) Banker b) Student c) Research Scholar d) Lecturer
e) Service/Business Sector f) NRIs

4. Have you ever heard about the Islamic Banking system?

a) YES b) NO



5. In the Islamic Banking any transaction relates to interest is haram
(prohibited) & instead of interest it uses the method of profit & loss, called
shirkah (Partnership). DO you think, it is better than conventional banking
system?
a) YES b) NO c) Cant say

6. As per Shariah, Islamic Banking does not invest in those Industries
(alcohol, pork, gambling, beauty parlor, etc.) which are haram
(prohibited). Do you think, this will lead to the economic welfare of the
nation?
a) YES/Agree b) NO/Disagree c) Cant say/Neutral

7. Do you think, the present Islamic Banking system is based on the true
teachings of Islam/Quran?

8. Do you agree that the Islamic Banking to be governed & controlled
under Shariah regulations (Islamic regulations) not by the Banking
Regulation Service Act of RBI?

9. Will it charge interest through indirect way by misguiding its
customers?



10. Islamic banking is not different from other conventional banks except
to comply with Shariah legal prescription with regard to the product offering.
The conventional banks can also offer the same service, provided by Islamic
Banks, by introducing the separate Islamic financial section. Do you agree
with the statement?

11. Islamic Banking will contribute to removing societys inequality &
improving the general standard of living. Do you agree with the statement?

12. Do you think that the implementation of Islamic Banking would bring
following Risk: (any one)
a) Increase anti national activities & leads to social conflicts.
b) Confuse in the banking system.
c) Against to the constitution & banking regulation service act.
d) Time consuming for the implementation.
e) Other risks

13. Do you think that the implementation of Islamic Banking would bring
following Benefit: (any one)
a) Huge cash inflow to the nation especially by Muslim investors.
b) Economic benefit to the nation.
c) The social benefit of a particular class of people.
d) Reforming the existing banking system.
e) Other benefits



14. Do you agree that the India is ready for the implementation of Islamic
banking?

15. Will you use Islamic banking services in future?

16. Any suggestions regarding to topic?

Date:
Place:

Thanking you in anticipation

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