Financial Inclusion In Islamic Banking

FINANCIAL INCLUSION THROUGH ISLAMIC BANKING

MUMNA NAZAR

Assistant Professor, P.G Dept. of Commerce, MES Asmabi College, P. Vemballur

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Abstract

Financial inclusion is a buzz word today. It plays an important role in driving away the poverty from the country. Financial inclusion is the process of ensuring financial services to the weaker sections of the society at an affordable cost. As per the Sachar Committee Report, Muslims in India are financially excluded. Even though they have an account, the extent of usage is very low due to the religious reasons. The Non-Muslims also do not actively engage in the formal financial system due to the interest involvement. Islamic Bank can serve as a remedy

This segment of the population needs access to personal finance. Conventional banking products are not in accordance with their personal law and are not fully accepted by the market segment. A high level committee report known as the Sachar Committee Report in India had pointed out that certain sections of Muslims are very backward in India, and do not use the banking sector. Those who use the banking services are only for name sake. Majority of the Muslim population firmly believe interest as forbidden. The policy goal of financial inclusion can be met if financial products offered to Muslims are not repugnant to their personal law. Moreover, most of the Non-Muslims are not actively engage in the formal financial system. Majority of the people in India make use of the banking service only for fund transfer, safe keeping of their deposit etc. and they do not deposit their fund or avail loans from the bank due to the interest involvement. Here lies the importance of Islamic banking. The prospects for Islamic banks are very bright in Kerala especially when many of the Muslims deposit their savings in the conventional banks without accepting any interest. So a piece of research has been designed to evaluate the extent of financial inclusion among the population in Kerala as well as their awareness and preference towards Islamic

As compared to other states, Kerala is ranked in the first position in the list of financially included states. Majority of our people have bank accounts. But the extent of usage is very low. Actually they are not actively participated in the formal financial system due to the interest based banking. The study shows that if the Islamic Banking is introduced in India, definitely Muslims and Non-Muslims will actively participate in the banking system and we can ensure the overall inclusion of the people in the formal financial system. The criticizers of Islamic Banking point out that the introduction of Islamic Banking is not feasible in India because the legal framework of India is not allowing such a kind of banking system. But the United Kingdom which is the source of our constitution and banking laws, already adopted Islamic Banking due its immense opportunities for the future growth. There is three option for the Government of India to introduce Islamic Banking;(1)The amendment of the current legal framework (2)Establishment of a separate legislation for the functioning of Islamic Bank (3)Allow the foreign Islamic Banks to open their branches in India. Islamic Bank is the need of the hour and it will lead to the inclusive growth of