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Tuesday, 30 September 2008

Indian finance sector looks to Shariah

by Moiz Mannan/
The Peninsula, 29/9/08
It is not so long back that we discussed how the conventional financial institutions the world over are under siege owing to various factors and how the Islamic system has been steadily gaining in popularity.
It seems we didn't speak too soon. We now have the AIG+Lehman+Merrill crisis staring us in the face. The collapse of Washington Mutual has only made it worse. On the other hand, we have more and more Asset Management Companies (AMCs), and other financial entities focusing on Shariah-compliant funds and Islamic banking.
DNA Money recently reported in India that AMCs are increasingly using portfolio management services (PMS) to invest in the stocks of Shariah compliant companies.
Shariq Nisar, CEO of Bangalore-based Bearys Amanah Investments, told the newspaper, "There are around 154 million Muslims in India. Their savings would definitely be over Rs 5,000 crore. If you take foreign investors and NRIs into account, this figure could swell further."
With regards to compliance, the current share of Indian Shariah-compliant market capitalisation (at 61 per cent) is highest even when compared with the number of Islamic countries such as Malaysia (at 57 per cent), Pakistan (51 per cent) and Bahrain (6 per cent).
Reliance Money and Religare Securities have collaborated with Islamic finance firms Parsoli Corp and Bearys Amanah respectively. After Reliance Money launching its
Shariah-compliant portfolio management service for Muslim HNIs, group firm Reliance Mutual Fund is close to filing its prospectus with the regulator to launch an Islamic fund. As a next step, Reliance is also planning to launch its entire spectrum of financial services the Shariah way, said a company insider.
UTI AMC, DWS Investments, Reliance Mutual Fund, Way2Wealth and Edelweiss Mutual Fund also plan to enter the fray soon, it was reported. HSBC is also to launch its PMS, the HSBC Amanah India Shariah Portfolio. Lotus India AMC is planning a Shariah-compliant PMS tie-up with Parsoli.
Another reason the Shariah compliant PMS business has become attractive for AMCs is that investors from West Asia and the Gulf are looking outside the Western and Gulf markets for better investment opportunities.
Securities and Exchange Board of India (Sebi) guidelines curtail the scope of financial institutions offering Shariah-compliant financial products and services. For example, it's not possible to launch a Shariah-compliant bank in India as banks have to pay interest on deposits, while Shariah forbids payment of interest.
Sebi has allowed AMCs to launch Shariah compliant PMS businesses. The industry, though, is awaiting Sebi nod to launch Shariah-compliant mutual funds in India. Around 335 NSE-listed and 300-BSE listed companies are Shariah-compliant.
Some industry insiders feel these AMCs are testing the waters with the PMS business before Sebi approves Shariah-complaint mutual funds in India.
Meanwhile, some leading Muslim businessmen from Uttar Pradesh have asked the government to allow Islamic banking in India. It would be started with the help of the Islamic Development Bank (IDB) in Saudi Arabia.
A proposal has reportedly been submitted to the Planning Commission by them for setting up Islamic Development Bank, which would not charge interest on loans etc, under Islamic norms.
Muslim businessmen feel there is a need to open such banks in India as Muslims are reluctant to take loans from the banks where interest is charged.
One of the reasons for widespread poverty among Muslims was that they were not open to taking loans from the banks. It has been argued that millions of Muslims in the country would be able to do business once they start getting interest-free loans.
Looking at the trends, the Aligarh Muslim University is set to offer a course on Islamic banking and finance from the next academic year. AMU vice chancellor P K Abdul Aziz was recently reported to have had a detailed discussion regarding this with a team of experts consisting Mohamed Nejatullah Siddiqui, former AMU professor and a well known expert on Islamic banking and finance, Sayed Mohamed Beary and Shariq Nisar of Bearys Amnah Investments in Bangalore.
Elsewhere in world as well, financial institutions are looking the Islamic way. Deutsche Bank AG's prime brokerage business is preparing to launch a Shariah-compliant hedge fund platform within the next month, as part of its Middle East expansion plans.
Deutsche Bank will expand an existing service on a selective basis and the platform - or range of financial products - will offer techniques for hedge funds to adjust to Islamic investment rules.
In January this year, Dow Jones launched the faith-based Dow Jones Dharma indices, which measure the performance of 254 companies that have characteristics like good governance and environmental friendliness in common.
The values-based investing envisaged through the indices draws on the principles of Indian religions such as Hinduism, Jainism, Sikhism, and Buddhism.
Apart from the Dow Jones Dharma Global Index, there are four country-specific Dow Jones Dharma indices, for India, the US, Britain, and Japan.
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