Monday, 3 January 2011

"India launches Shariah Stock Index"

From a friend following re new Sharia finance index in India (hat-tip LA).
I've written elsewhere at some length on just what a crock Sharia finance is: part hypocrisy, part inefficient copy of conventional finance, part creeping Sharia.  Others still fall into the trap of providing Sharia finance, part of being sensitive and tolerant to the needs of Muslim populations.  Ah well....


The Bombay Stock Exchange has launched India’s first index of companies compliant with Islamic law, or shariah, in an effort to bring more of the country’s 175m Muslims into mainstream finance, and to attract investment from foreign shariah-abiding funds.
Shariah finance has become a trillion-dollar global business, most notably in the Gulf. But in spite of India’s sizeable Muslim population, it has not yet taken off in south Asia. The creators of the new index – called the BSE Tasis Shariah Index and launched on Monday – hope to change that.

The index is made up of the 50 biggest Indian companies whose operations are deemed to be consistent with shariah – meaning that they don’t derive significant profit from interest payments, or sell products or services such as tobacco, alcohol or weapons, which are considered in the Islamic faith as sinful.

Produced in collaboration with Taqwaa Advisory and Shariah Investment Solutions (Tasis), the index includes some of India's market leaders such as conglomerate Reliance Industries, IT services provider Tata Consultancy Services, and the telecoms company Bharti Airtel.

It will be the first shariah index created in India using the strict guidelines and local expertise of a domestic, India-based shariah advisory board.  The Bombay Stock Exchange's rival, the National Stock Exchange, has already  compiled a list of shariah-compliant stocks, but it has not packaged them  into an index that enables investors to track their performance on a  rolling basis.

The index represents the latest move in India’s long-running drive to promote financial inclusion - giving more Indians access to loans, insurance and investment products from the formal financial services sector. Previous inclusion initiatives have rarely targeted India's Muslims, who make up 15 per cent of the country's population, and are equal in number to the population of Pakistan.

K. Rehman Khan, deputy chairman of the Rajya Sabha, the upper house of the Indian parliament, has long urged India’s financial services sector to introduce shariah-compliant products.

“Muslims have every right to seek an avenue for investment that complies with their religious faith,” Khan said at a shariah finance summit earlier this year, adding:
Shariah-compliant mutual fund schemes will help to channelise savings of the huge Islamic population in India.
The Reserve Bank of India has published statistics showing that Muslims borrow less than their fellow Indians: the average Muslim has taken out loans equal to 47 per cent of the money he or she has on deposit, whereas the national average is 74 per cent.

If Muslims borrowed more, the argument goes, their capacity to start businesses and to buy homes would also increase.

Madhu Kannan, managing director and chief executive of the BSE said in a statement that the new index would increase awareness of “financial investments amongst the masses and help enhance financial inclusion”. It would “also build a base for licensing for the construction of Shariah-compliant financial products, including mutual funds, ETFs, and structured products”.

He added that the index could provide a means of attracting pools of capital to India from the Gulf, Europe, and south-east Asia, giving “Islamic and other socially responsible investors another means to access the Indian market.”

Dr Shariq Nisar, director of research and operations at Tasis, said:
All Muslim countries of the Middle East and Pakistan put together do not have as many listed, Shariah-compliant stocks as are available on the BSE.
The index, if judged to be credible, has a good chance of making India a more attractive destination for Islamic funds from sophisticated markets such as the Gulf.

But on its own it's unlikely to conquer the bigger challenge of bringing millions of India's excluded Muslims into the financial sector.

Related reading:
Strong demand for Malaysian sukuk, FT (March 31)