Now, it’s India Inc’s turn to play a religious card but mercifully, for all the right reasons. The nation has emerged as a key ground for Islamic investments, under which speciality funds pump in money only into those activities or firms that are compliant with the principles and ethics of Islam.
With billions of dollars being deployed by devout investors only in those entities that are in conformity with Shariah laws, the opportunity is huge. Since about 12 per cent of India’s citizens are Muslims, Islamic finance is a domestic fund opportunity as well. As many as 2,730 listed companies in India are Shariah compliant, says Talha Sareshwala, chief finance officer at Ahmedbad-based Parsoli Corporation Ltd, a BSE-listed non-banking finance company that specializes in channeling funds from domestic and non-resident Muslims into the Indian market.
According to industry sources, Islamic investments amounting to about $750 million have already been made in the country’s capital market and infrastructure sector over the past few months.
Shariah prohibits Muslims from receiving interest payments and from investing in companies involved in the production or sale of pork, alcohol, tobacco, pornography, gambling and non-Islamically structured finance. Islamic finance works on these principles and encourages Muslim community to invest their money as their religion allows.
Ashraf Mohamdey, chief executive officer, Idafa Investments Private Limited, Mumbai says, “Globally, Islamic finance (including Islamic banking, Islamic insurance and Islamic investments) is growing at the rate of 20 per cent per year. If given a chance to prove itself, Islamic finance will give similar growth numbers in India.”
“Almost 80 per cent of the companies are Shariah compliant as far as the business of the companies is concerned. The culture and ethos of the Indian community is such that except banks and financial institutions which are non compliant there are only a handful of non-compliant companies such as those involved in gaming and casinos or alcohol manufacturing,” Sareshwala said.
Sareshwala dismissed criticism that Islamic laws work against investment.
“Shariah is totally in favour of investment. Any investment, which is in line with Islamic principles, is not only allowed but also propagated in Islam,” he said. Islamic or Shariah Finance is not a new concept. It has been there for nearly two decades now and has caught in places including Britain, France, Indonesia, Malaysia and Middle East countries.
Apart from stock market, equity mutual funds may be a happening sector for Islamic Finance to flourish. Mohamdey says, “Equity mutual funds can play an important role to fill the void of Shariah compliant products here. An ethical fund like ‘Tata Select Equity Fund’ tries to fill that gap, in a limited way.
If Shariah-compliant funds are offered, following all the criteria of investments prescribed by Islam and Shariah boards certifying the products, it will give a lot of assurance to investors about the authenticity of claims made by any asset management company.”