Islamic banking sees 20% growth

Islamic banking has been gaining momentum after the recent global meltdown and many countries, including India, are opening their doors for it, said an international Islamic banking analyst in Hyderabad.

Islamic banking is based on the principle of profit-sharing, rather than charging interest.

"The current volume of Islamic banking is $1.2 trillion. It is very small and less than 1 per cent compared to conventional banking, which is nearly $243 trillion. But this $1 trillion was achieved within 40 years. This is growing 15-20 per cent much faster than conventional banking," said Madzlan Husain on the sidelines of 17th Commonwealth Law Conference.

He said as many as 75 countries all over the world have recognised the need for Islamic banking and opened doors to it.

The segment constitutes nearly 22 per cent of the total banking in Malaysia, which is considered the hub of Islamic banking. It has been growing at nearly 20 per cent in countries like Kuwait, Bahrain and Saudi Arabia.

"The number is definitely growing. Recently, India also allowed Islamic banking in Kerala. The global financial crisis contributed to the growth. They feel there is something structurally wrong with conventional banking system. Even countries like China, South Korea are implementing Islamic banking," said Husain.

Recently, the Kerala High Court paved the way for setting up an Islamic bank by dismissing Janata Party leader Subramaniyam Swamy's plea challenging the state government's decision to start an Islamic bank.

"Why should our country lose the benefit of foreign direct investment in this sector by saying that we will not allow Islamic banking? When our Prime Minister visited Malaysia, he said India will send a team of RBI officials to Malaysia to study Islamic banking aspects. I am sure there will be a necessary regulation in place," said L Nageswara Rao, the counsel for the Kerala Government in the Islamic banking case.

According to analysts, no financial institution that practices Islamic banking looked for bailout packages during the global recession.

"After the recession, banks, such as Scotland Bank, were bailed out. But not a single Islamic bank needed help or looked for bailout. It was completely unfazed by the recession. That is the reason, France is competing with Britain to become the hub of Islamic banking," said M J Husain, an independent director at South Africa-based ASBA Bank (a subsidiary of Barclays Bank).