The dawn of Islamic finance

Simple regulatory changes could transform India into a regional hub for shariah-compliant finance and clear the way for a much-needed wave of investment into its infrastructure, explains Ben Frumin

India need only look across the Bay of Bengal to the peninsular nation of Malaysia for a glimpse of the sort of powerhouse its own, still-nascent, Islamic finance sector may one day become.

Islamic finance accounts for around 16% of Malaysia’s financial system and is growing at a rate of 12-15% each year. Islamic securities reportedly account for more than two-fifths of outstanding private debt securities and a quarter of outstanding bonds. And the action isn’t just for Muslims; a large Malaysian bank recently reported that 70% of its shariah-compliant products were taken up by non-Muslim investors.

“It’s huge,” says Professor Bala Shanmugam, director of the banking and finance unit at Malaysia’s Monash University. “Malaysia did benefit out of this. If India were to get into this game, there would be benefits, certainly.”