Shariah-compliant services are emerging as the next hot trend in the financial space in India. Already quite a rage in the Middle East, these services are picking up pace in India as well. In the first week of this month, Reliance Money announced the launch of its Shariah-compliant Portfolio Management Services (PMS) in partnership with Parsoli Corporation. In addition, a number of mutual fund houses like Reliance Mutual Fund, Way2Wealth, Edelweiss and UTI Asset Management also plan to launch Shariah-compliant services in the coming months.

The portfolio management scheme by Reliance will offer services to clients with an investment surplus of Rs 5 lakh. According to Sudip Bandyopadhyay, managing director and chief executive officer, Reliance Money, “These services are for investors who keep their money idle in cash due to the unavailability of investment options that are Shariah compliant. This fund gives them the opportunity to invest in the right stocks.”

Investments made through this portfolio management service will be predominantly in Indian equities. Apart from assisting Reliance in marketing the schemes extensively, Parsoli Corporation will ensure and certify that the investments are in compliance with the Shariah.

Shariah, the religious law of Islam, places restrictions on commercial and financial activities permitted to its followers. According to the law, the followers of Islam are allowed to invest only in ‘clean’ stocks. Investing in industries involved in the production and sale of alcohol, tobacco, vulgar entertainment, lending and borrowing on interest (banks and finance companies) is strictly prohibited under the law.

After Reliance Money’s PMS, group firm Reliance Mutual Fund is understood to have filed its prospectus with the regulator to launch an Islamic fund. The group is in an advanced stage of talks with an Islamic institution for launching the fund. As the next step, Reliance is also planning to launch its entire spectrum of financial services the Shariah way.

Suneeti Ahuja, ExpressMoney India, May 26, 2008

Related Links : Five easy steps to investing in Mutual Funds

The Aligarh Muslim University (AMU) / Dr Mohammad Nejatullah Siddiqi

The Aligarh Muslim University (AMU) has decided to begin a course on ‘Islamic Banking and Finance’, the first such course in India. The “interest free banking course” is to be based upon the norms of ‘Shariah’ (Islamic rules on transaction).

A three-member committee has been formed under Dr Mohammad Nejatullah Siddiqi, a retired AMU professor of Economics and Islamic Studies. Besides holding experience of teaching Islamic Finance in various countries including Saudi Arabia and Malaysia, he has been a consultant to a Los Angeles-based private firm, American Islamic Finance.

The Central Board of Secondary Education(CBSE) had recently asked the university to start an undergraduate programme in marketing and finance.

Vice-Chancellor of the university, Prof Abdul Aziz, told The Indian Express: “Indian banking system is gradually becoming aware of the Islamic banking. Indian students should be exposed to the topic that holds considerable potential. We hope to begin the course in the next academic session.”

Islamic law prohibits interest on both loans and deposits, as both profit and risk are shared together by the borrower and the lender. As a result, the depositor, who does not bear risk in other banking systems, has to equally share the risk with the bank in Islamic banking. Owner of the capital, however, is allowed to have a share in the surplus.

Though there isn’t any Islamic bank in India, there exist a few non-banking cooperatives like Al Ameen Islamic Financial & Investment Corporation Ltd in Karnataka and Mumbai-based Al-Barr Finance House Limited, which has branches in cities like Aligarh and Chennai. There are also some popular investment companies like Parsoli Corporation Ltd that claim to invest money as per the Islamic laws.

Experts feel that following a drift in US and European markets, India is seen as a potential place for the Islamic banking, which can also attract NRI investors. “Some of the top Indian companies are looking forward to launch Islamic financial products in the country,” said Dr Siddiqi.

He said: “There lies a huge job opportunity in Islamic financing in India. Some private institutions provide a few short-term courses, but the programme at the AMU will be totally different.”

Maulshree Seth, ExpressIndia.com May 22, 2008

Some leading Muslim businessmen from Uttar Pradesh have asked the government to allow Islamic banking in India. In this regard, a proposal has 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.

Islamic Development Bank is headquartered in Jeddah, Saudi Arabia, and it does not run from the interest income. Also, the money from the bank can not be used for financing businesses related to liquor, pornography etc. This is being run by the Organisation of Islamic Countries.

“There is a need to open such banks in India as Islam considers interest as ‘haraam’ (unethical) and therefore, Muslims are reluctant to take loans from the banks as interest is charged in such banks,” member of Islamic Development Bank Mohammad Ishaak told PTI News Agency.

He said one of the reasons for widespread poverty among Muslims was that they were not open to taking loans from the banks. He added that 140 million Muslims of the country will be able to do business once they start getting interest-free loans. “Therefore, we have sent a proposal to Planning Commission Deputy Chairman Montek Singh Ahluwalia so that we can also start an Islamic banking with the help of Islamic Development Bank in Saudi Arabia,” he said.

The Economic Times (India) 18 May, 2008

The Indian Economy is blazing since last couple of years, as per government claims and similarly Indian stock exchange is also showing remarkable performance by crossing the 21K mark however, it also dipped below 15K. But it happens in the stock market and market expert still believes that Indian stock Market is still fundamentally strong.

But there is a sector in India still in the nascent stage and is known by Islamic Banking and Finance and Sharia’s (according to Islamic rule) Investment. However, in the globe, it is growing with more than 10% growth rate and currently Islamic Asset is nearby USD500-billion in the world as per Forbes, the premier business magazine stated.

But, in India it is in the embryonic stage. However, there are some non-banking cooperative societies being operated across the India that follows the fundament finance law. But, still no banks as per Reserve Bank of India’s norms has been settled in India.

The RBI in this regard had set up a committee headed by Anand Sinha, chief general Manager in-charge, department of banking operations & development in 2005 to seek out the scope of Islamic banks in India but the committee in its presented report had denied any chance to open any banks in present existing condition of RBI.

But, due to estimating massive revenue in Islamic financial sector, some foreign banks include Citibank, Standard Chartered Bank and HBSC have opened Islamic windows in some of the western countries like US and Europe and several West Asian countries. They are operating on interest-free banking for Islamic windows as they claim.

But, in India there are only few non-banking financial corporates include Al Ameen Islamic Financial & Investment Corp. (India) Ltd, Al-Falah Investment Ltd, Al-Barr Finance House Limited (India), Bank Muscat International (SOAG) and Seyad Shariat Finance (according to Academy for international Modern studies, Canada) are working successfully. These banks work on no-profit-no-loss basis and provide a wide range of loans as well.

These banks provide housing, consumer, personal, educational, automobile and several other loans as per banks’ individual terms and conditions. They usually invest in government securities, small savings schemes or units of mutual funds for earning profits.

The account holders who want only ‘halal’ (fair as per Islamic rules) money can get the loans from these financial institutes as it claims. Now, what is ‘halal’ income?

The ‘halal’ income denotes the income, which comes from avoiding these sources (alcohol, tobacco, porn related fields, pork and interest from exploitation). The incomes from cheating, fraudulent and gambling are also ‘haram’ (invalid).

On the other hand, the stock market and Mutual funds, which most Muslims earlier avoid, are now grabbing the opportunities since the entry of two major investment institutes Parsoli Investment and IDAFA investment.

At present Parsoli Corporation ltd is the biggest known investment company that is listed on Bombay Stock Exchange and Ahmedabad Stock Exchange and has the nexus with network-18 group, however it has been working since 1990. Besides this, IDAFA investment pvt. ltd (www.idafa.com) is another investment firm constituted in 1994 and claims to invest money in Mutual Funds and stock market by following the Islamic rules.

Noor En Ahmed, Newstrack India 28 Apr 2008