International Journal of Islamic and Middle Eastern Finance and

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Awareness and willingness towards Islamic banking among Muslims: An Indian
perspective
Jamid Ul Islam, Zillur Rahman,
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IMEFM
10,1
92
Received 28 January 2016
Revised 1 August 2016
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Accepted 13 December 2016
International Journal of Islamic
and Middle Eastern Finance and
Management
Vol. 10 No. 1, 2017
pp. 92-101
© Emerald Publishing Limited
1753-8394
DOI 10.1108/IMEFM-01-2016-0017
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1753-8394.htm
Awareness and willingness
towards Islamic banking among
Muslims: An Indian perspective
Jamid Ul Islam and Zillur Rahman
Department of Management Studies,
Indian Institute of Technology Roorkee, India
Abstract
Purpose – This study aims to explore the awareness and willingness of Muslim Indians toward Islamic
banking. Subsequent to financial crises during the past few decades, Islamic banking has attained global
acceptance and has gained a momentum in emerging economies as a substitute for the conventional
(interest-based) banking. As India ranks third in terms of Muslim population globally, it is quite spontaneous
to analyze the concept of Islamic banking in an Indian perspective.
Design/methodology/approach – To collect data, adopting purposive sampling, a sample of 290 Indian
Muslims was surveyed in Delhi National Capital Region of India using a self-structured questionnaire.
Appropriate statistical tools were applied to analyze the data.
Findings – The results concede that majority of the respondents lack an understanding of how Islamic
banking works. The results further concede that majority of the respondents are willing to go for
Islamic banking if informed properly and offered better customer experience. The results suggest that Islamic
banking organizations need to frame effective communication strategies to increase awareness among the
populace about how Islamic banking operates.
Practical implications – If approached strategically, one would expect India to be a huge market for
Islamic banking. By offering a preliminary understanding about the awareness and willingness of Indian
Muslims, this study can prove helpful for organizations to design and deliver informative advertising
campaigns to inform potential customers about Islamic banking operations and to ensure the ability to
provide efficient service before starting the operations in any country for the first time.
Originality/value – By exploring the awareness and willingness of Indian Muslims, the current study
takes an important research gap into account and, therefore, enriches the existing Islamic banking literature.
Keywords India, Awareness, Islamic banking, Willingness
Paper type Research paper
1. Introduction
Islamic banking is a system of banking that works on the doctrine of Islamic law (Shariah)
and is governed by Islamic economics (Kamarulzaman and Madun, 2013). The fundamental
doctrine which Islamic banking is built upon is the prohibition of interest and sharing of
profit and loss (Khattak and Rehman, 2010). With its rapid growth in the past few decades,
Islamic banking has become an integral part of global mainstream banking system (Gilani,
2015; Rammal and Zurbruegg, 2006). Since its commercial exposure in 1970s (Naser and
Mountinho, 1997), Islamic banking has been experienced globally. From 1970 onward,
Muslim researchers gradually highlighted some principles of banking activities that could
presumably be acceptable to the Muslim communities. Egypt’s Mit Ghamr Savings Bank
undertaken in 1963 was the first successful adoption of Islamic banking that worked on the
principle of profit-sharing rather than on interest (Lewis and Algaoud, 2001). In 1973, the
establishment of the Islamic Development Bank was decided in the conference organized by
foreign ministers of Muslim nations with the objective of reinforcing economic as well as
 social development of Muslim economies in adherence to the principles of Shariah (Saeed, Islamic
1996). This reflected the first major initiative by Muslim economies to promote Islamic banking
banking.

1.1 The transpiring journey of Islamic banking since the year 2000 onward
By 2003, there were around 176 Islamic banks worldwide, managing assets worth US$147
billion (Ghannadian and Goswami, 2004). This number rose to around 300 banks with assets 93
worth around US$800 billion (Khan and Bhatti, 2008). In 2014, there were around 400 Islamic
banks spread across 58 countries managing assets worth more than US$1.5 trillion (GFD
Report, 2014). Progressing with a compound annual growth rate of 17 per cent during
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2009-2013, the worldwide Islamic banking profit pool is expected to triple by 2019 (WIBC
Report, 2014-2015). HSBC, Citigroup, Standard Chartered and J.P. Morgan are the leaders of
this industry, providing Islamic banking products through special facilities of Islamic
windows (provided by conventional banks to Muslims willing to adopt Islamic banking)
(Rammal and Zurbruegg, 2006).
After growing as a prominent form of banking system across Middle East, Asia and
Africa, Islamic banks have started offering an appealing substitute to the conventional
banking services. As a result, Islamic banking is also gaining ground in Western countries
wherein it was virtually absent in the past. While Islamic banking has gained popularity in
economies with both Muslim and non-Muslim populace, but it has not yet set its footprints in
India. Of the many reasons for this backwardness of Islamic banking in India, one is the lack
of awareness among Indian population regarding the principles of this system (Faisal and
Rehman, 2008). India ranks third after Indonesia and Pakistan in terms of Muslim population
globally (Maps of World, 2016) with a Muslim population of around 172 million (India
Census, 2011). Established on the provisions of Shariah, one would expect that if Islamic
banking is made available, there is a huge potential market for this banking system in India
as the increase in demand of Islamic banking products has been proved in other non-Muslim
majority economies like the UK and Australia (Rammal and Zurbruegg, 2006).
This paper pursues the question that considering the huge Muslim population in India,
what level of awareness do Indian Muslims possess about Islamic banking, its products and
its operations. If Islamic banking products are offered to Indian Muslims, how willing are
they to accept those products? This study aims to explore and ascertain the level of
awareness and willingness of Muslims who apparently represent the potential customers of
Islamic banking in a country like India. The paper is organized as follows: The first section
presents a review of literature regarding Islamic banking, followed by a section on the
methodology used by this study. Next, findings of the study are presented. The concluding
section provides the discussion, implications and limitations of this study.

2. Literature review
Despite the fact that Islamic banking has spread its mark across the world, it has grabbed
little scholarly attention in the context of India. Although the amount of information
regarding Islamic banking continues to grow in Muslim countries, relatively little is known
about its basic terminology and application in countries with Muslims as a minority
population (Gerrard and Cunningham, 1997). This awareness gap is expected to narrow
down in the years to come, as large numbers of banks are now offering Islamic banking
products. Islamic banking is becoming more internationalized and is seen as a practical
reality rather than a theoretical idealism (Lee and Dutta, 2007). Besides, Islamic banking has
become an important element of the mainstream banking in such countries (Gerrard and
Cunningham, 1997; Rammal and Zurbruegg, 2006).
 IMEFM Islamic banking follows the principle of sharing of profit and loss, and prohibition of
10,1 interest. Moreover, the businesses in which the banks invest their money should also adhere
to certain Islamic principles, such as the businesses directly or indirectly involved in
alcoholic drinks, pornography gambling or any other activity that is treated as harmful to the
social welfare are prohibited (Kamarulzaman and Madun, 2013). Considering the above
doctrine, Muslims find it undesirable to conduct business and banking operations with the
94 interest-laden conventional banks (Faisal and Rehman, 2008; Gerrard and Cunningham,
1997; Rammal and Zurbruegg, 2006). The principle of profit sharing encourages the involved
parties to work together as partners rather than as creditors and debtors. This principle
enhances mutual responsibility for the investments done and, thereby, increasing the
chances of success of the projects undertaken (Ben Bouheni and Ammi, 2015).
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To harmonize this issue, Islamic banks started serving this niche market by developing a
range of interest-free banking products that comply with Shariah principles and are,
therefore, acceptable and adequate to their customers (Faisal and Rehman, 2008; Kolsi and
Zehri, 2014; Rammal and Zurbruegg, 2006). A variety of Islamic banking products are
offered by such banks; the commonly used products include Musharaka (i.e. equity
partnership), Mudaraba (i.e. finance trusteeship), Ijara (i.e. hire purchase contract),
Murabaha (i.e. cost-plus financing) and Bai Salam (i.e. forward sale). With all such products,
the involved parties operate as partners having a risk attached to all. All parties receive a
performance-based rate of return rather than a pre-determined interest-based return
(Gerrard and Cunningham, 1997).
In India, a whooping US$ 1.5 trillion has accumulated as an unclaimed interest amount on
deposits of Muslims in different banks (Masvood and Choudary, 2015). This is because of the
religious implications that the majority of Muslims do not want to use it. This calls for a
re-examination of the stand on Islamic banking by Reserve Bank of India and the Finance
Ministry to create a favorable environment to plough back this idle money into the economy.
In response to this, Islamic banking is set to launch in India in the near future, as Saudi
Arabia-based Islamic Development Bank (IDB) is expected to launch its operations in the
state of Gujarat (The National, 2016). IDB’s entry into India is expected to improve the
long-term private finance on a large scale. To make the inclusion of Islamic banking a
success, a multitude of reforms need to be carried out in the existent legal set up of India
(Haque et al., 2009). Adequate models need to be drafted and implemented to suit the diverse
financial needs of the country.
To ascertain that Islamic banking continues to excel and mark its presence in the
countries wherein it is not adopted yet, the current study argues that a deeper understanding
of fundamental terminology and operations of Islamic banking among the Muslim populace
is a must. Literature on Islamic banking delineates that many scholars have attempted to
investigate the level of awareness among people about Islamic banking in different countries
(Buchari et al., 2014; Khattak and Rehman, 2010; Ramdhony, 2013; Rammal and Zurbruegg,
2006), but there is a dearth of such studies in Indian context. Therefore, this paper is an effort
to assess the awareness of Islamic banking among Indian Muslims as well as their
willingness toward such banking system, so that if in the years to come, Islamic banking
institutions started operating in India, they can have a superficial idea about their potential
customer base. This, in turn, may help the institutes frame their communication strategies
accordingly.

3. Methodology
The study aims to assess the level of awareness and willingness that Indian Muslims have in
relation to Islamic banking. To accomplish this aim, a questionnaire consisting of four
 sections was framed (Appendix). The first section examined the respondents’ knowledge Islamic
about the commonly used terms of Islamic banking. The terms included in the questionnaire banking
were Shariah, Riba, Musharaka, Mudharaba, Ijara, Murabaha, Takaful and Sukuk (Gerrard
and Cunningham, 1997; Faisal and Rehman, 2008). The respondents were asked to answer in
“Yes” or “No”. The second section of the questionnaire comprised six statements to examine
the respondents’ awareness about Islamic banking. The third section contained five
statements intended to check the willingness of the respondents toward Islamic banking,
given a condition of “If Islamic banking institutions are opened up in the country”. The 95
statements were drawn from previous studies (Gerrard and Cunningham, 1997; Faisal and
Rehman, 2008; Rammal and Zurbruegg, 2006). The respondents were asked to present their
responses on a five-point Likert scale with values ranging from “1 ⫽ strongly agree” to “5 ⫽
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strongly disagree”. The last section contained questions concerning the demographic
information of the respondents.
The subject experts in the areas of finance, marketing, banking and consumer behavior
were requested to provide suggestions to confirm the content validity of the questionnaire.
Before finalizing, a pre-testing was done on 30 respondents. The pre-testing suggested
deletion and modification of certain statements. After making the suggested modifications,
adopting purposive sampling, a final questionnaire was distributed among 350 Indian
Muslim respondents in Delhi National Capital Region of India. This region was chosen for
data collection because Delhi is the capital city of India and represents the population of
different states all across the country, divided in this study into six zones of India (Table II).
We tested the reliability of the second and third sections of the questionnaire by calculating
Cronbach’s ␣ for awareness and willingness set of statements. The values of Cronbach’s ␣
came out to be 0.84 for awareness and 0.86 for willingness, which reflects a significant
reliability of the scale.

3.1 Exploratory factor analysis

This study conducted factor analysis using principal component analysis to ensure validity
of the scale. The results are summarized in Table I. The Eigen value of all the factors is ⬎1,
with cumulative variance of 67.33 per cent and Kaiser–Meyer–Olkin (KMO) value equal to
0.83. A significant Bartlett’s test of sphericity was obtained. As presented in Table I, higher
factor loadings (⬎0.5) suggested the scale to be valid (Hair et al., 2010).

4. Data analysis
Certain conditions like religion, age and having a bank account were implied for respondents
to participate in the survey (Rammal and Zurbruegg, 2006). Only Indian Muslims who were
bank account holders and aged above 18 years were taken as the respondents for this study.
Data were collected for a duration of two weeks. A total of 290 completely filled responses
were received back, reflecting a response rate of 83 per cent. The respondent profile based on
gender, age, educational qualification, occupation and residence is summarized in Table II.
Table III presents the respondents’ generalized knowledge about the commonly used
terms in Islamic banking. Majority of the respondents do not have knowledge about basic
Islamic banking terminology. With 77 and 68 per cent of the respondents responding
affirmatively to the terms “Shariah” and “Riba”, respectively, this is probably because of the
common use of these two terms in the Islamic literature. On the other hand, most of the
respondents did not know the terms like Musharaka, Mudharaba, Ijara, Murabaha, Takaful
and Sukuk. This is possibly largely because of non-availability of Islamic banking in India in
general.
Table IV reflects the responses to the survey statements regarding awareness of the
respondents toward Islamic banking. As evident from the data, people are aware only about
 IMEFM Items Eigen value Loadings Loadings
10,1
Awareness 2.93
“I am aware of Islamic banking” 0.61
“I am aware of Islamic banking products” 0.58
“I know that Islamic banking is based on
96 Shariah” 0.55
“I know that in practice Islamic banking is
different from conventional banking” 0.62
“If I put my money in Islamic banks, I am
contended that my money will not be invested in
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unethical ventures like Alcohol, Gambling etc.” 0.65

“Islamic banking is strictly based on risk
sharing model” 0.60
Willingness 2.61
“I am willing to switch to Islamic banking given
same quality of conventional banking service
(ATM, online access, phone banking)” 0.56
“I am willing to switch without credit facilities” 0.63
“I am willing to switch to Islamic banking even
if I incur some losses” 0.54
“I am willing to switch Independent of brand
image” 0.57
“More people will utilize the services provided
Table I. by these banks?” 0.64
Factor analysis results KMO ⫽ 0.83; Bartlett’s test of sphericity approx. chi-square ⫽ 2032.434; df ⫽ 508, significance ⫽ 0.000

Sample distribution by Characteristics Frequency (%)

Gender Male 190 65.51

Female 100 34.49
Age group 18-24 96 33.10
25-31 87 30
32-38 64 22.06
39 and above 43 14.84
Educational qualification Less than graduation 56 19.31
Graduation 164 56.55
Masters and above 70 24.14
Occupation Government jobs 45 15.53
Private jobs 106 36.56
Self-employed/business 35 12.06
Students 80 27.58
Any other 24 8.27
Residence North India 84 28.96
South India 52 17.93
East India 40 13.79
West India 37 12.75
Table II. Central India 57 19.65
Respondent profile North East India 20 6.89
 the term Islamic banking, as 64 per cent agreed to it strongly or very strongly and only 5 per Islamic
cent respondents were aware of Islamic banking products. Higher percentage of disagreeing banking
responses were given by the respondents when asked about the operational activities such
“Islamic banking is strictly based on risk sharing model”, “I know that Islamic banking is
based on Shariah ” and “I know that in practice Islamic banking is different from
conventional banking”.
Interestingly, the lack of awareness about Islamic banking products or its operations does
not seem to be affecting the willingness of Indian Muslims to adopt this type of banking. As 97
a matter of fact, 97 per cent of the respondents were willing to adopt Islamic banking if
offered with same facilities provided to them by their current conventional banks, 94 per cent
respondents were willing to switch to it if they understood how Islamic banking actually
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performs its operations, and 81 per cent respondents believed that more people will adopt
this banking if made available in the country (Table IV).
If we take a look at the responses regarding willingness on Table V, more than 60 per cent
of the respondents show willingness toward Islamic banking even if the credit facilities are
not available. These findings go against the results of Rammal and Zurbruegg (2006), who
found a negative response to such queries while studying the Muslim population in
Australia. The differences in the results could be because of the higher influence of religiosity
or because of the collectivistic culture of Indians (Moriano et al., 2011) wherein people go by
what is accepted in the society collectively. Brand image of the banks was also not found to
determine the willingness of respondents in choosing Islamic banking. This again could
possibly be because of the religiosity factors.

Terms Yes (%) No (%)

Sharia 223 77 67 23
Riba 197 68 93 32
Musharaka 35 12 255 88
Mudharaba 35 12 255 88
Ijara 29 10 261 90
Murabaha 25 9 265 91 Table III.
Takaful 27 11 258 89 Knowledge about
Sukuk 27 11 258 89 fundamental terms

Strongly Can’t Strongly

agree Agree say Disagree disagree
Statement (%) (%) (%) (%) (%)

“I am aware of Islamic banking” 23 41 3 17 16

“I am aware of Islamic banking products” 3 2 0 13 82
“I know that Islamic banking is based on
Shariah” 15 18 7 37 23
“I know that in practice Islamic banking is
different from conventional banking” 6 12 7 39 36
“If I put my money in Islamic banks, I am
contended that my money will not be invested
in unethical ventures like Alcohol, Gambling Table IV.
etc.” 24 21 11 20 24 Responses to survey
“Islamic banking is strictly based on risk statements regarding
sharing model” 6 7 6 33 48 awareness
 IMEFM Strongly Can’t Strongly
10,1 agree Agree say Disagree disagree
Statement (%) (%) (%) (%) (%)

If Islamic banking institutions are opened up

in the country:
“I am willing to switch to Islamic banking
98 given same quality of conventional banking
service (ATM, online access, phone banking)” 62 35 3 0 0
“I am willing to switch to Islamic banking if I
understand how it actually operates” 58 38 4 0 0
“I am willing to switch without credit
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facilities” 32 38 15 7 8
Table V. “I am willing to switch Independent of brand
Responses to survey image” 51 46 0 3 0
statements regarding “More people will utilize the services
willingness provided by these banks?” 47 34 7 6 6

5. Discussion and conclusion

The purpose of this study was to assess the level of awareness and willingness that Indian
Muslims have toward Islamic banking. The results indicate that Indian Muslims possess a low
level of awareness about the features and operations of Islamic banking. This may possibly be
due to the non-availability of any established Islamic banks. The findings further indicate that
Indian Muslims would respond to Islamic banking enthusiastically if appropriate services and
benefits are provided. The higher level of willingness toward switching to Islamic banking
carries a great opportunity for Indian financial organizations, knowing that Islamic banking in
India is yet in its embryonic stage and there is an immense scope for it. Therefore, if Indian
organizations start offering Islamic banking products on an experimental basis and build on their
reputation and experience, they can expect a huge customer base of the Indian Muslim
population.
The results of this study may certainly be reflective of the findings of any other study
administered in a country with Muslims as a minority populace and where established Islamic
banks are not present. One would expect the findings of such study to reflect a high level of
awareness among Muslims about Islamic banking principles, but the findings of the current
study reveal a lack of awareness of the same. We, therefore, suggest organizations to design and
deliver informative advertising campaigns to inform potential customers about Islamic banking
operations, and to ensure the ability to provide efficient service before starting the operations in
any country for the first time. Once people are exposed to Islamic banking culture, it may increase
people’s awareness of what Islamic banking is, what it involves and how it actually operates. This
may further reinforce the willingness of the people toward adopting Islamic banking.
Irrespective of the presently facing challenges, Islamic banking has huge outlook for future in
India. As competition increases, Islamic banks must be capable of delivering personalized and
customized products and services. Therefore, it is imperative for such organizations to
comprehend the gestures of customer segmentation, develop strong customer relationships and
respond to the requirements of specific market segments. As this study shows, Islamic banks
need to educate customers about their operations so as to encourage them to adopt the alternative
banking system. To ensure that people are aware about how these banks operate these
organizations need to educate and engage customers to conform to the benefits of adopting
Islamic banking transactions by developing effective communication strategies that go beyond
just advertising.
 Most of the results of the current study are in sync with the earlier studies that where Islamic
conducted in countries like Australia (Rammal and Zurbruegg, 2006), Singapore (Gerrard and banking
Cunningham, 1997) and United Kingdom (Omer, 1992; Sheikh and Ahammad, 2013). The models
adopted by such countries (e.g. specific Islamic banking windows offered by the existing
conventional banks) may be ratified to introduce Islamic banking in India, taking care of some
minor changes in the banking regulations. Introducing Islamic banking in India will probably
lead to the financial inclusion of the different sections of the society, it will also help India attract
foreign investments especially from Gulf Cooperation Council countries which may prove to be 99
great help in realizing the dream of becoming a financial hub (Masvood and Choudary, 2015).
Through equity finance, Islamic banking can help India solve the problem related to insufficiency
between the labor and capital ratio, which in itself can be a revolution in the field of agriculture
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and other unorganized sectors (Khan, 2013). Islamic banking can promote entrepreneurship by
providing finance on the basis of profit and loss and risk sharing (Satija and Puri, 2015). Islamic
banking can add toward India’s economic growth and can work as a system to overcome the
country’s inflation and liquidity problems (Khan, 2013). Finally, in a democratic set-up, both
banking systems can co-exist wherein people can democratically decide which system they want
to bank upon. Therefore, it is imperative to have such a system in India that can offer an effective
banking choice wherein Muslims may invest in harmony to Islamic principles and the rest may
have a substitute of interest bearing conventional banking (Satija and Puri, 2015).
By exploring the awareness and willingness of Indian Muslims, the current study takes an
important research gap into account and, therefore, enriches the existing Islamic banking
literature. Besides, the current study can prove to be of some help to banking institutions in
framing appropriate marketing and advertising strategies to build and strengthen a huge
customer base of Indian Muslims.

6. Scope for future research

The study recognizes certain limitations that open up avenues for future research. First, this
study takes only Muslims as its respondents and is conducted in only one region of the country.
Future research is suggested to conduct cross-religious studies with a large sample collected from
different states of the country so as to generalize the findings. This paper is confined to the
demand side perspective of the prospectus of Islamic banking in India; future research is
encouraged to investigate the supply side perspective of Islamic banking in India as well. In
pursuance of the same, future studies may also put the viewpoint of the Muslim bank managers/
shareholders so as to get a better understanding of initiation of the Islamic banking in India.

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 Appendix Islamic
banking
Section-1

Knowledge of the basic terms

Shariah Yes/No Ijara Yes/No

Riba Yes/No Murabaha Yes/No

101
Musharaka Yes/No Takaful Yes/No

Mudharaba Yes/No Sukuk Yes/No

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Section-2

Awareness of Islamic banking (“1 = strongly agree” “5 = strongly disagree”)

“I am aware of Islamic banking” 1 2 3 4 5

“I am aware of Islamic banking products” 1 2 3 4 5

“I know that Islamic banking is based on Shariah ” 1 2 3 4 5

“In practice Islamic banking is different from conventional banking” 1 2 3 4 5

“If I put my money in Islamic banks, I am contended that my money 1 2 3 4 5

will not be invested in unethical ventures like Alcohol, Gambling etc.
”
“Islamic banking is strictly based on risk sharing model” 1 2 3 4 5

Section-3

Willingness towards Islamic banking (“1 = strongly agree” “5 = strongly disagree”)

If Islamic banking institutions are opened up in the country :

“I am willing to switch to Islamic banking given same quality of
conventional banking service (ATM, online access, phone banking)” 1 2 3 4 5

“I am willing to switch to Islamic banking if I understand how it 1 2 3 4 5

actually operates”
“I am willing to switch without credit facilities” 1 2 3 4 5

“I am willing to switch Independent of brand image” 1 2 3 4 5

“More people will utilize the services provided by these banks?” 1 2 3 4 5

Section-3

Demographic profile

Gender

Age (Approx.)

Educational qualification

Occupation
Figure a1.
Residence

Corresponding author
Jamid Ul Islam can be contacted at: jammicms.kmr@gmail.com

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