Sharia market goes mainstream; Monad University begins courses in Islamic finance

By TwoCircles.net Staff Reporter,

Hyderabad: The subject of Islamic finance has surfaced at copious controversies in India, travelling through court cases, to political podiums, after all of it; finally this vast lucrative finance market is getting a mainstream acceptance, at least academically.

Monad University Uttar Pradesh is introducing Islamic finance as higher educational courses. The university, in collaboration with Institute of Islamic Banking Finance & Insurance (IIBFI), Chennai is providing three passages for Islamic finance education. MU is introducing Post Graduate Diploma in Islamic Banking & Finance (PGDIBF), MBA in Islamic finance and PhD in Islamic finance.

Read more at :

http://twocircles.net/2013apr28/sharia_market_goes_mainstream_monad_university_begins_courses_islamic_finance.html

Islamic insurance out of reach of Indian Muslims

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MuSaumya Roy and Gargi Banerjee

Mumbai: Sayeda Ansari wants to buy a life-insurance policy for her daughter. But she cannot do so unless her stock broker gives the nod. The daughter, the single-mother of a six-year-old boy, lives with Ansari. “Insurance will give her and her son some support,” says Ansari, a Mumbai-based sales tax officer.

But insurance, particularly life insurance, is prohibited by many Islamic scholars because insurance firms may invest the money in shares of firms that are in the business of alcohol, gambling or entertainment— this is not allowed by shariah or Islamic law. Besides, the insurance firm may also lend money and earn interest income, which is also not approved by shariah, a legal framework that regulates public and some private aspects of life based on Muslim principles of jurisprudence. Shariah deals with many aspects of day-to-day life including politics, economics, business and social issues.

Praying and worrying do not go together. If you believe in the power of prayer, you would not need insurance, says Zafar Sareshwala who runs Islamic brokerage Parsoli Corp.Shariah does not allow Muslims to buy insurance. Life insurance, in particular, is frowned upon because life is given or taken away by God and anyone taking out a policy is, in effect, hedging against God’s will. There are Islamic insurance products available—this market is valued at a few billion dollars—including policies for marine and airline insurance, but this phenomenon is restricted to countries such as Malaysia, Indonesia and those in West Asia. Although India is home to more than 150 million Muslims, insurance companies have largely stayed away from Islamic products here. Bajaj Allianz’s Star Select is currently the only Islamic, or ethical insurance product in India.

When Ansari approached Ashraf Mohamedy, who runs an Islamic stock brokerage calledIdafa Investments Pvt. Ltd, he advised her against getting her daughter insured because it is haram or forbidden in Islam. She is still waiting for an insurance product that will get Mohamedy’s nod. Ansari, now 56, hopes it will be soon.

There is no data indicating what percent of Muslims are insured but anecdotal evidence suggests it is less than the national average because of religious reasons.

The Rajinder Sachar Committee, a panel appointed by Prime Minister Manmohan Singh to prepare a report on the social, economic and educational status of the Muslim community, has found that since most Muslims are self-employed, their need to access bank credit is high. Despite this, “Muslims constitute about 12% of all account holders in banks,” according to the committee; this is well below the share of other minorities. And on average, the amount outstanding (an indicator of loans sanctioned) per account for Muslims is about half that for other minorities and only one-third of other communities. The committee presented its report in November 2006.

Rakesh Basant, one of the six members in the Sachar committee, says that the idea that Muslims are generally averse to participating in the formal financial system is a myth. The committee did establish that there is a need for savings accounts among Muslims but sometimes “Muslims themselves assume they will not qualify for credit, and do not approach banks,” Basant says. The committee did not touch upon the insurance sector. Muslim stockbrokers in India say that with the cost of health care rising, there is a growing need for insurance coverage among Muslims. The community’s informal safety net called zakat where wealthy Muslims are obliged to pay 2.5% of their wealth to underserved categories of the society when their annual wealth exceeds a minimum level, is increasingly proving inadequate.

After riot-related damages hit businesses run by Muslims, religious consensus in the community veered towards allowing general insurance. However, even as the cost of health care increases, health and life insurance products remain largely out of bounds.

Bajaj Allianz’s Star Select is currently the only Islamic, or ethical insurance product in India. When people of his community come to Mufti Abdul Qayoom, an Ahmedabad-based cleric, seeking his advise on insurance-related queries, he tells them to invest in a systematic investment plan (SIP) of a mutual fund. SIP is a method of investing a fixed sum, on a regular basis, in a mutual fund scheme. It is similar to regular saving schemes like a recurring deposit and it allows one to buy units on a given date each month.

Mohamed Irfan Dadani, an agent of Life Insurance Corp. of India (LIC) who operates in central Mumbai’s Muslim-dominated Mohamed Ali Road, says 90% of his 800 clients are Muslims but admits that at least 30% of them stay away from life insurance. Dadani and Mahesh Mangaonkar, another LIC agent in Mumbai’s Santa Cruz suburb, keep an assortment of religious opinions, articles and fatwas that say Muslims can buy insurance products and produce these when they meet prospective Muslim clients. The clients usually do not commit to buying any policy without taking religious opinion.

Even those who have bought policies are not particularly happy. “I took life insurance for myself and my family many years ago because I did not have the money to invest in property or gold then,” says Abdul Ral, a Mumbai-based timber trader. “Now I pay more than Rs1.20 lakh in insurance premiums a year. But I know this is haram and I will be thrashed by the powers above,” the 56-year-old said.

Haroon Efroze, a financial advisor with Metlife India Insurance Co. Pvt. Ltd, a private sector insurance firm, says that despite being a devout Muslim he sometimes feels the ire of his community members because he sells a forbidden product. He recalls having worked out a model portfolio for a high net worth Muslim individual who was ready to pay a premium of Rs1,000 daily to cover himself and his family, but backed out at the last moment, because his local cleric did not approve of the plan. Efroze, however, points out that instances of Muslims opting for unit linked insurance plans (Ulips) and general insurance products have been growing.

Zafar Sareshwala, who runs an Islamic brokerage called Parsoli Corp. Ltd, is in the process of creating an Islamic insurance product and he does advise clients to be insured. But personally, he and his family do not want life or health insurance. “Praying and worrying do not go together. If you believe in the power of prayer, you would not need insurance,” he says. “But when the choice is between getting insurance and staying sick because of the lack of insurance, I feel taking insurance is the lesser evil.”

source : livemint

Scope of Islamic Investment in Indian Equities

A relatively new concept a decade ago, Islamic banking and finance has seen explosive growth in recent years. This can be attributed to the fact that many predominantly Islamic nations have seen an increase in financial wealth mainly due to a surge in exports and high oil prices. This increasing income is fuelling an increasing demand for Shariah compliant offerings along ethically-aware Islamic principles as an alternative to western banking and investment products.

While Islamic compliant investment avenues are now becoming available in most countries, India has not seen large scale development. Other than a handful of Shariah compliant funds, currently India offers limited options for investors looking at Shariah compliant investing. However, this should not go to undermine the scope for Shariah compliant investment opportunities in India.

Post the 1991 liberalization reforms, India’s GDP has consistently grown at over 5% and has now crossed the 8% mark. This figure as compared to the US figure of less than 3% and European growth rate of 2% on a 10 year average is remarkable. [1] Infact, with its population qualifying as a huge yet untapped consumer market and relatively cheap labour, India is expected to be one of the world’s two largest economies by 2050. [2] The huge capital inflows in the country mirror the confidence of foreign investors in the Indian economy’s ability to match this expectation. Foreign Institutional Investor flows have shown a consistent upward trend with the total for current financial year (ending March 2007) being USD 7.99 billion as on 29th December 2006. [3]

India’s institutional framework is well suited for the world economy. Corporate India has been performing well. This, coupled with strong macroeconomic fundamentals, growing industrial and service sectors provides great potential for investment in the Indian economy. Infact India ranks higher vis-à-vis other BRIC nations (Refers to the countries Brazil, Russia, India and China which are rapidly developing and are expected to eclipse most of the current richest countries of the world by the year 2050). in the World Economic Forum’s Global Competitiveness report. India has scored well in innovation, sophistication of firm operations and adoption of technologies. [4]

India has amongst the most developed and organized markets in the world. Two of India exchanges are amongst the five largest in the world. India has almost 10000 listed companies, a number second to none. Asia’s oldest stock exchange, the Bombay Stock Exchange (BSE) is India’s biggest in terms of listed companies (4853) and market capitalization (USD 797 bn) [30th November 2006]. [5]

By number of transactions, the National Stock Exchange (NSE) and BSE are the third and fifth largest in the world respectively. [6]

The India benchmarks – the BSE Sensex and the Nifty have given annualized returns of 57.30% and 67.05% respectively for December 2005 – November 2006. Between March 2001 and December 2006 BSE market capitalization has recorded a jump of over 600 percent, whereas the same for NSE has been over 589 percent. [7]

Such strong numbers only go to confirm that it is the ‘ideal’ time to take a call on the India-story.

To gauge the scope of Islamic investment opportunities in the Indian stock market, it is imperative to examine stocks which conform to the norms stipulated by the Islamic Shariah principles. A thorough study was conducted by Dr. Shariq Nisar, an eminent personality of Islamic Finance in India. [8]

Below are a few facts from the study that go to prove that there is huge potential for Islamic investing in India.

‘Out of the 1000 NSE listed companies, 335 are Shariah compliant. The market capitalization of these stocks accounts for approximately 61% of the total market capitalization of companies listed on NSE. This figure is higher even when compared with a number of predominantly Islamic countries such as Malaysia, Pakistan and Bahrain where share of Shariah compliant market capitalization is 57%, 51%, and 6% respectively of the total market capitalization. [9] In fact, the growth in the market capitalization of these stocks was more impressive than that of the non- Shariah compliant stocks.’

‘The software, drugs & pharmaceuticals and automobile ancillaries sector were the largest sectors among the Shariah compliant stocks. They constitute about 36% of the total Shariah compliant stocks on NSE.’

On examining the BSE 500 (Mostly India’s Fortune 500), the market capitalization of the 237 Shariah-compliant companies hovered between 48% – 50% of the total BSE 500 market capitalization during the period of Dr. Shariq Nisar’s study.

The table below indicates the number of Shariah compliant companies in India during the period of study.

  Mar-02 Mar-03 Mar-04 Mar-05 Dec-05
NSE
Total number of companies listed 988 988 988 988 1000
Shariah compliant companies 115 137 185 237 335
           
BSE
Total number of companies listed 500 500 500 500 500
Shariah compliant companies 95 112 164 196 237

Author Source: Centre for Monitoring Indian Economy (CMIE)

There are a few Shariah compliant investment vehicles available in India for foreign investors. The Kotak Indian Shariah fund is one such fund which endeavours to achieve capital appreciation by being invested in the shares and equity-linked instruments of companies which the Investment Manager believes are Shariah compliant as per the Shariah supervisory board.

Conclusion
India is expected to see stellar macroeconomic performance in the coming years. The Indian Equity indices have risen around 49% (Sensex) [10] in the past one year on the back of a strong domestic growth story, improving global competitiveness of Indian companies and robust Foreign Institutional inflows into India. The huge spread of listed Shariah compliant companies gives the fund managers a wider spectrum and flexibility to identify and invest in future growth sectors and companies. Investors from across the world, who are looking at Shariah compliant investment opportunities, could find India as an attractive destination. In fact Indian markets may throw wider options vis-à-vis many Islamic countries. This is what differentiates the Indian markets. Also as an investor, one would be investing into a billion people country with a GDP growth rate in excess of 8% and corporate earnings growing in excess of 15% predominantly out of domestic consumption rather than export dependence.

There is a strong likelihood of a substantial increase in the funds available for Shariah investment as a result of growing wealth in Islamic countries and communities. Complementing this is the fact that India is becoming extremely important for investors’ portfolios and long-term Shariah investors will find this story a difficult one to ignore.

[1] Bloomberg
[2] BRIC report – 2003
[3] bseindia.com
[4] http://weforum.org/pdf/Global_Competitiveness_Reports/Reports/gcr_2006/top50.pdf
[5] bseindia.com
[6] Economic survey 2004-05 ministry of finance, GOI 2005
[7] Bloomberg
[8] Dr. Shariq Nisar holds a PhD in Economics with a specialization in Islamic Finance. He is investment advisor to Idafa Investments Pvt. Ltd, a Shariah compliant investment management firm in India.
[9] Islamic Capital market products: Developments and Challenges, Islamic Research and Training Institute, Islamic Development Bank, 2005.
[10] Bloomberg

Thanks investindia