Although the concept of Islamic banking emerged about 15-20 years back, it has caught on only in the past three to four years. India has a huge market potential for Islamic banking given the fact that the country has a very huge Muslim population. However, there exist numerous economic and legal challenges for the expansion of this system in India.

India is the second home for Muslim population, the first being the traditionally Muslim countries. The country hosted the Mughals during the 15^th century who made the country their home considering the riches in the country. The Mughals brought with them trade, craft and commerce. This shaped India as a secular country and as a place for Hindus, Muslims, Christians, Parsis, Sindhis, etc. India today has the third highest population of Muslims in the world, behind Indonesia and Pakistan. There are more than 15 crore Muslims in India.

The word Islam is not limited to a religion or a community at large. It is a philosophy, a philosophy to balance and redistribute the benefits accruing from capital creation to every section of the society and a philosophy to benefit from the potential of the country through financial competence, financial discipline and work ethics. The Islamic philosophy of investments has been guided by certain religious books, works of religious scholars and the principles set forth. The Shariah principles are the major guiding material from which the philosophy emerges. The "Deen", guides the nature of the philosophy.

Compliance is the most important requirement for the proper functioning of any financial market. Islamic financial markets are no exception. The financial securities have to comply with the requirements of the Shariah principles. These principles provide discipline to the markets and prompt them to focus on the ultimate objectives of Islamic financial dealings. Islamic financial dealings aim to make the markets more efficient by providing capital to the needy sections of the society from the sections that have surplus capital. The emphasis is on productive use of capital in the economy.

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