When you consider that there are nearly 200 million Muslims in India, it is surprising that one of the world's fastest growing economies has little or no facilities for them to invest their money in a Sharia-compliant manner.
Indeed, the total size of 100 per cent Islamic funds registered for sale in India was a miniscule $3.1 million (Dh11.4 million) as of March 2011, according to Lipper, a Thomson Reuters company.
Not that India's reluctance to embrace Islamic finance is unusual in non-Muslim countries, like so many other places, there is a hostility to the practice based on the incorrect belief that it is a political or religious movement, or that it propagates an ideology that is inconsistent with democratic values.
It is fair to say that the Islamic finance industry also shares some of the blame for this perception, it is not yet savvy or sophisticated enough in the realm of public relations and marketing.
But, actually, India is important for the growth of Islamic finance. The country has historical ties to the Gulf, and is not only part of the Bric group of nations (Brazil, Russia, India and China), but it is also categorised as a rapidly developing economy (RDE).
So India presents an obvious opportunity, but the question remains: is India ready for Islamic finance?
The recent establishment of an Islamic finance institution in Kerala, with the backing of the local government, has at least gone some way to suggesting that it is. One of the key effects of this has been the revelation that Islamic finance is about business and not religion, it does not favour one religion over another. Islamic finance is "user agnostic"; its door is open to all.
In recognition of this, the local proponents and Indian stakeholders should perhaps think about rebranding Islamic finance.
Turkey has achieved this by renaming Islamic banking "participation banking". This is an initiative that India could certainly consider.
Soon, as it happens, India will have "participation banking" at its doorstep — Turkey's Bank Asya, an Islamic bank, announced in March its interest in establishing a representative office in India.
Fourteen of the countries that make up the G20 have some form of Islamic fin-ance, including India. The UK, for example, has been involved in Islamic finance since the early 1980s and it is still a well-functioning inclusive secular democracy.
A more technical question is: if India was to expand its level of Islamic banking, should this be a retail or wholesale approach?
A deposit-taking Islamic commercial bank, that is, retail, will present more challenges, as legislation, regulations, and mindset issues still need to addressed. Second, what is the number of bankable Muslims in India?
How many Islamic funds, with small minimum amounts, have been launched and available to the onshore "man on the street" since the BSE launched their Sharia index in 2010?
It is also worth mentioning that a number of financial scams have been perpetrated on this generally financially illiterate Muslim community, hence, new offerings are viewed with scepticism.
A wholesale approach implies fewer signs-offs from regulatory bodies, because it is not dealing with the public's money. For example, in 2006, Bahrain-based Islamic investment bank, Gulf Finance House, embarked on the ambitious Energy City India, a $2 billion project in Maharashtra.
Other areas for consideration for India include Islamic trade finance funds (major bilateral trade with GCC) and Islamic venture capital (VC) funds working with technology parks in, say, the UAE for areas like alternative energy, health care, water and others.
But it does not mean non-bankable Indians would be excluded from Islamic fin-ance. Indeed, some of the recent developments with micro-finance in Andra Pradesh have not left the best impression with recipients and regulators. I have said elsewhere, unlike micro-finance, which creates a creditor-debtor relationship and interest rates often becomes usurious, we should look at Islamic micro-funding, as an equity approach aligns the interests of the parties and prevents the debt trap.
The amounts to be disbursed would be the same, and the areas for funding will be Sharia-compliant, as micro-finance doesn't typically involve financing the "sin" sector.
The funding would be for Muslims and non-Muslims, therefore building future customers. Obviously, vetting and monitoring costs are higher, but it should result in more focused investments.
Finally, if Islamic finance is involved in developing local infrastructure, financial enfranchisement and contributing to employment - as it no doubt would be - I imagine that the opposition to it on the part of chief ministers of Indian states would eventually fade away.
The writer is global head of Islamic Finance at Thomson Reuters. Opinions expressed are in his personal capacity.