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WealthCity Profile
Wealth City, provides Faith based Financial and Investment solutions to clients, specializing in Shariah / Ethical investments. We are the first of its kind in Whole of South India to provide Shariah / Ethical Investment Services. Wealthcity has have tied up with Religare, a Ranbaxy Group company to bring the best of Stock Markets, Mutual Funds, Portfolio Management Services, Real Estate Investment, Wealth Management Services, etc all in a Ethical / Shariah Compliant Way.
Wealthcity's in-depth research, technical analysis and powerful trading tools coupled with highest standards of service are tailored to suit the requirements of investors, from first- time participants to seasoned professionals.
Wealthcity provide's a complete financial suite to investors to pursue their investment goals with a dedicated team of brokers and an advanced e-trading portal which enables investors to buy and sell securities with ease, anywhere, anytime. Wealth City currently caters to a diverse client base including local, regional and international investors who believe in ethical/shariah way of investment.
Wealthcity aims at creating a “Just and Equitable World” and Wealth City is a step towards that goal, whose services will inculcate a culture of savings and investments, ethically and profitably there by creating Wealth and help individuals achieve their long-term financial goals.
We at WealthCity believe in offering reliable, flexible and innovative services while delivering a constant level of client experience through our continuous pursuit of our clients' financial success.
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Principles of Shariah Governing Islamic Investment Funds
Principles of Shariah Governing Islamic Investment Funds
By Mufti Taqi Usmani
- Equity Fund
- Conditions for Investment in Shares
- Ijarah Fund
- Commodity Fund
- Murabahah Fund
- Bai'-al-dain
- Mixed Fund
The term "Islamic Investment Fund" in this article means a joint pool wherein the investors contribute their surplus money for the purpose of its investment to earn halal profits in strict conformity with the precepts of Islamic Shariah. The subscribers of the Fund may receive a document certifying their subscription and entitling them to the pro-rated profits actually accrued to the Fund. These documents may be called "certificates" "units" "shares" or may be given any other name, but their validity in terms of Shariah, will always be subject to two basic conditions:
First, instead of a fixed return tied up with their face value, they must carry a pro-rated profit actually earned by the Fund. Therefore, neither the principal nor a rate of profit (tied up with the principal) can be guaranteed. The subscribers must enter into the fund with a clear understanding that the return on their subscription is tied up with the actual profit earned or loss suffered by the Fund. If the Fund earns huge profits, the return in their subscription will increase to that proportion; however, in case the Fund suffers loss, they will have to share it also, unless the loss is caused by the negligence or mismanagement, in which case the management, and not the Fund, will be liable to compensate it.
Second, the amounts so pooled together must be invested in a business acceptable to Shariah. It means that not only the channels of investment, but also the terms agreed with them must conform to the Islamic principles.
Keeping these basic requisites in view, the Islamic Investment Funds may accommodate a variety of modes of investment which are discussed briefly in the following paragraphs.
In an equity fund the amounts are invested in the shares of joint stock companies. The profits are mainly achieved through the capital gains by purchasing the shares and selling them when their prices are increased. Profits are also achieved by the dividends distributed by the relevant companies.
It is obvious that if the main business of a company is not lawful in terms of Shariah, it is not allowed for an Islamic Fund to purchase, hold or sell its shares, because it will entail the direct involvement of the share holder in that prohibited business.
Similarly the contemporary Shariah experts are almost unanimous on the point that if all the transactions of a company are in full conformity with Shariah, which includes that the company neither borrows money on interest nor keeps its surplus in an interest bearing account, its shares can be purchased, held and sold without any hindrance from the Shariah side. But evidently, such companies are very rare in the contemporary stock markets. Almost all the companies quoted in the present stock market or in some way involved in an activity which violates the injunctions of Shariah.
Even if the main business of a company is halal, its borrowings are based on interest". On the other hand, they keep their surplus money in an interest bearing account or purchase interest bearing bonds or securities.
The case of such companies has been a matter of debate between the Shariah experts in the present century. A group of the Shariah experts is of the view that it is not allowed for a Muslim to deal in the shares of such a company, even if its main business is halal. Their basic argument is that every share-holder of a company is a sharik (partner) of the company, and every sharik, according to the Islamic jurisprudence, is an agent for the other partners in the matters of the joint business. Therefore, the mere purchase of a share of a company embodies an authorization from the share-holder to the company to carry on its business in whatever manner the management deems fit. If it is known to the share-holder that the company is involved in an un-Islamic transaction, still, he holds the shares of that company, it means that he has authorized the management to proceed with that un-Islamic transaction. In this case, he will not only be responsible for giving his consent to an un-Islamic transaction, but that transaction will also be rightfully attributed to himself, because the management of the company is working under his tacit authorization.
Moreover, when a company is financed on the basis of interest, its funds employed in the business are impure. Similarly, when the company receives interest on its deposits an impure element is necessarily included in its income which will be distributed to the share-holders through dividends.
However, a large number of the present day scholars do not endorse this view. They argue that a joint stock company is basically different from a simple partnership period. In partnership, all the policy decisions are taken by the consensus of all the partners, and each one of them has a veto power with regard to the policy of business. Therefore, all the actions of a partnership are rightfully attributed to each partner. Conversely, the policy decisions in a joint stock company are taken by the majority. Being composed of a large number of share-holders, a company cannot give a veto power to each share-holder. The opinions of individual share-holders can be overruled by a majority decision. Therefore, each and every action taken by the company cannot be attributed to every share-holder in his individual capacity. If a share-holder raises an objection against a particular transaction in an annual general meeting, but his objection is overruled by the majority, it will not be fair to conclude that he has given his consent to the transaction in his individual capacity, specially when he intends to withdraw from the income attributable to that transaction.
Therefore, if a company is engaged in a halal business, however, it keeps its surplus money in an interest-bearing account, wherefrom a small incidental income of interest is received, it does not render all the business of the company unlawful. Now, if a person acquires the shares of such a company with clear intention that he will oppose the incidental transaction also, and will not use that proportion of the dividend for his own benefit, how can it be said that he has approved the transaction of interest and how can that transaction be attributed to him?
The other aspect of the dealings of such a company that it sometimes borrows money from financial institutions. These borrowings are mostly based on interest. Here again the same principal is relevant. If a share-holder is not personally agreeable to such borrowings, but has been overruled by the majority, these borrowing transactions cannot be attributed to him.
Moreover, according to the principals of Islamic jurisprudence borrowing on interest is a grave sinful act for which the borrower is responsible in the Hereafter; however, this sinful act does not render the whole business of the borrower as haram impermissible. The borrowed amount being recognized as owned by the borrower, anything purchased in exchange of that money is not unlawful. Therefore, the responsibility of committing a sinful act of borrowing on interest rests with the person who willfully indulged in a transaction of interest, but this fact does not render the whole business of a company as un-lawful.
Conditions for Investment in Shares
In the light of the forgoing discussion, dealing in equity shares can be acceptable in Shariah subject to the following conditions:
1. The main business of the company is not in violation of Shariah. Therefore, it is not permissible to acquire the shares of the companies providing financial services on interest, like conventional banks, insurance companies, or the companies involved in some other business not approved by the Shariah, such as the companies manufacturing, selling or offering liquors, pork, haram meat, or involved in gambling, night club activities, pornography etc.
2. If the main business of the companies is halal, like automobiles, textile, etc. but they deposit there surplus amounts in a interest-bearing account or borrow money on interest, the share holder must express his disapproval against such dealings, preferably by raising his voice against such activities in the annual general meeting of the company.
3. If some income from interest-bearing accounts is included in the income of the company, the proportion of such income in the dividend paid to the share-holder must be given charity, and must not be retained by him. For example, if 5% of the whole income of a company has come out of interest-bearing deposits, 5% of the dividend must be given in charity.
4. The shares of a company are negotiable only if the company owns some non-liquid assets. If all the assets of a company are in liquid form, i.e. in the form of money that cannot be purchased or sold, except on par value, because in this case the share represents money only and the money cannot be traded in except at par.
What should be the exact proportion of non-liquid assets of a company for the negotiability of its shares? The contemporary scholars have different views about this question. Some scholars are of the view that the ratio of non-liquid assets must be 51% at the least. They argue that if such assets are less than 50%, the most of the assets are in liquid form, therefore, all its assets should be treated as liquid on the basis of the juristic principle: The majority deserves to be treated as the whole of a thing. Some other scholars have opined that even if the non-liquid asset of a company or 33%, its shares can be treated as negotiable.
The third view is based on the Hanafi jurisprudence. The principle of the Hanafi school is that whenever an asset is a mixture of a liquid and non-liquid assets, it can be negotiable irrespective of the proportion of its liquid part. However, this principle is subject to two conditions:
First, the non-liquid part of the mixture must not be in a negligible quantity. It means that it should be in a considerable proportion. Second, the price of the mixture should be more than the price of the liquid amount contained therein. For example, if a share of 100 dollars represents 75 dollars, plus some fixed assets the price of the share must be more than 75 dollars. In this case, if the price of the share is fixed as 105, it will mean that 75 dollars are in exchange of 75 dollars owned by the share and the rest of 30 dollars are in exchange of the fixed asset. Conversely, if the price of that share fixed as 70 dollars, it will not be allowed, because the 75 dollars owned by the share are in this case against an amount which is less than 75. This kind of exchange falls within the definition of "riba" and is not allowed. Similarly, if the price of the share, in the above example, is fixed as 75 dollars, it will not be permissible, because if we presume that 75 dollars owned by the share, no part of the price can be attributed to the fixed assets owned by the share. Therefore, some part of the price (75 dollars) must be presumed to be in exchange of the fixed assets of the share. In this case, the remaining amount will not be adequate for the price of 75 dollars. For this reason the transaction will not be valid.
However, in practical terms, this is merely a theoretical possibility, because it is difficult to imagine a situation where a price of the share goes lower than its liquid assets.
Subject to these conditions, the purchase and sale of shares is permissible in Shariah. An Islamic Equity Fund can be established on this basis. The subscribers to the Fund will be treated in Shariah as partners "inter se." All the subscription amounts will form a joint pool and will be invested in purchasing the shares of different companies. The profits can accrue either through dividends distributed by the relevant companies or through the appreciation in the prices of the shares. In the first case i.e. where the profits earned through dividends, a certain proportion of the dividend, which corresponds to the proportion of interest earned by the company, must be given in charity. The contemporary Islamic Funds have termed this process as "purification."
The Shariah scholars have different views about whether the "purification" is necessary where the profits are made through capital gains (i.e. by purchasing the shares at a lower price and selling them at a higher price). Some scholars are of the view that even in the case of capital gains the process of "purification" is necessary, because the market price of the share may reflect an element of interest included in the assets of the company. The other view is that no purification is required if the share is sold, even if it results in a capital gain. The reason is that no specific amount of price can be allocated for the interest received by the company. It is obvious if all the above requirements of the halal shares are observed, the most of the assets of the company are halal, and a very small proportion of its assets may have been created by the income of interest. This small proportion is not only unknown, but also a negligible as compared to the bulk of the assets of the company. Therefore, the price of the share, in fact, is against the bulk of the assets, and not against such a small proportion. The whole price of the share therefore, may be taken as the price of the halal assets only.
Although this second view is not without force, yet the first view is more cautious and far from doubts. Particularly, it is more equitable in an open-ended equity fund because if the purification is not carried out on the appreciation and a person redeems his unit of the Fund at a time when no dividend is received by it, no amount of purification will be deducted from its price, even though the price of the unit may have increased due to the appreciation in the prices of the shares held by the fund. Conversely, when a person redeems his unit of the Fund at a time when no dividend is received by it, no amount of purification will be deducted from its price, even though the price of the unit may have increased due to the appreciation in the prices of the shares held by the fund. Conversely, when a person redeems his unit after some dividends have been received in the fund and the amount of purification has been deducted therefrom, reducing the net asset value per unit, he will get a lesser price compared to the first person.
On the contrary, if purification is carried out both on dividend and capital gains, all the unit-holders will be treated at par with the regard to the deduction of the amounts of purification. Therefore, it is not only free from doubts but also more equitable for all the unit-holders to carry out purification in the capital gains. This purification may be carried out on the basis of an average percentage of the interest earned by the companies included in the portfolio.
The management of the fund may be carried out in two alternative ways. The managers of the Fund may act as mudaribs for the subscriber. In this case a certain percentage of the annual profit accrued to the Fund may be determined as the reward of the management, meaning thereby that the management will get its share only if the fund has earned some profit. If there is no profit in the fund, the management will deserve nothing, but the share of the management will increase with the increase of profits.
The second option of the management is to act as an agent for the subscribers. In this case, the management may be given a pre agreed fee for its services. This fee may be fixed in lump sum or as a monthly or annual remuneration. According to the contemporary Shariah scholars, the fee can also be based on a percentage of the net asset value of the fund. For example, it may be agreed that the management will get 2% or 3% of the net asset value of the fund at the end of every financial year.
However, it is necessary in Shariah to determine any of the aforesaid methods before the launch of the fund. The practical way for this would be to disclose in the prospectus of the fund on what basis the fees of the management will be paid. It is generally presumed that whoever subscribes to the fund agrees with the terms mentioned in the prospectus. Therefore, the manner of paying the management will be taken as agreed upon on all the subscribers.
Another type of Islamic Fund may be an ijarah fund. Ijarah means leasing. In this fund the subscription amounts are used to purchase assets like real estate, motor vehicles, or other equipment for the purpose of leasing them out to their ultimate users. The ownership of these assets remains with the Fund and the rentals are charged from the users. These rentals are the source of income for the fund which is distributed pro rated to the subscribers. Each subscriber is given a certificate to evidence his subscription and to ensure his entitlement to the pro rated share in the income. These certificates may be preferably called "sukuk" -- a term recognized in the traditional Islamic jurisprudence. Since these sukuk represent the pro rated ownership of their holders in the tangible assets of the fund, and not the liquid amounts or debts, they are fully negotiable and can be sold and purchased in the secondary market. Anyone who purchases these sukuk replaces the sellers in the pro rated ownership of the relevant assets and all the rights and obligations of the original subscriber are passed on to him. The price of these sukuk will be determined on the basis of market forces, and are normally based on their profitability.
However, it should be kept in mind that the contracts of leasing must conform to the principles of Shariah which substantially differ from the terms and conditions used in the agreements of the conventional financial leases. The points of reference are explained in detail in my book "Islamic Finance." However, some basic principles are summarized here: 1. The leased assets must have some usufruct, and the rental must be charged only from that point of time when the usufruct is handed over to the lessee.
2. The leased assets must be of a nature that their halal (permissible) use is possible.
3. The lessor must undertake all the responsibilities consequent to the ownership of the assets.
4. The rental must be fixed and known to the parties right at the beginning of the contract. In this type of the fund the management should act as an agent of the subscribers and should be paid a fee for his services. The management fee may be a fixed amount or a proportion of the rentals received. Most of the Muslim jurists are of the view that such a fund cannot be created on the basis of mudarabah, because mudarabah, according to them, is restricted to the sale of commodities and does not extend to the business of services and leases. However, in the Hanbali school, mudarabah can be affected in services and leases also. This view has been preferred by a number of contemporary scholars.
Another possible type of Islamic Funds may be a commodity fund. In the fund of this type the subscription amounts are used in purchasing different commodities for the purpose of the resale. The profits generated by the sale are the income of the fund which is distributed pro rated among the subscribers. In order to make this fund acceptable to Shariah, it is necessary that all the rules governing the transactions and fully complied with. For example:
1. The commodity must be owned by the seller at the time of sale, therefore, short sales where a person sells a commodity before he owns it are not allowed in Shariah.
2. Forward sales are not allowed except in the case of salam and istisna' (For their full details my book "Islamic Finance" may be consulted).
3. The commodities must be halal, therefore, it is not allowed to deal in wines, pork, or other prohibited materials.
4. The seller must have physical or constructive possession or the commodity he wants to sell. (Constructive possession includes any act by which the risk of the commodity is passed on to the purchaser).
5. The price of the commodity must be fixed and known to the parties. Any price which is uncertain or is tied up with an uncertain event renders the sale invalid.
In view of the above and similar other conditions, it may easily be understood that the transactions prevalent in the contemporary commodity markets, specially in the futures commodity markets do not comply with these conditions. Therefore, an Islamic Commodity Fund cannot enter into such transactions. However, if there are genuine commodity transactions observing all the requirements of Shariah, including the above conditions, a commodity fund may well be established. The units of such fund can also be traded in with the condition that the portfolio owns some commodities at all times.
"Murabahah" is a specific kind of sale where the commodities are sold on a cost-plus basis. This kind of sale has been adopted by the contemporary Islamic banks and financial institutions as a mode of financing. They purchase the commodity for the benefit of their clients, then sell it to them on the basis of deferred payment at an agreed margin of profit added to the cost. If a fund is created to undertake this kind of sale, it should be a closed-end fund and its units can not be negotiable in a secondary market. The reason is that in the in the case Murabahah, as undertaken by the present financial institutions, the commodities are sold to the clients immediately after their purchase from the original supplier, while the price being on deferred payment basis becomes a debt payable by the client. Therefore, the portfolio of Murabahah does not own any tangible assets, rather it comprises of either cash or the receivable debts, and both these things are not negotiable, as explained earlier. If they are exchanged for money, it must be at par value.
Here comes the question whether or not Bai'-al-dain is allowed in Shariah. Dain means "debt" and Bai' means sale. Bai'-al-dain, therefore, connotes the sale of debt. If a person has a debt receivable from a person and he wants to sell it at a discount, as normally happens in the bill of exchange, it is termed in Shariah as Bai'-al-dain. The traditional Muslim jurists (fuqaha') are unanimous on the point that Bai'-al-dain is not allowed in Shariah. The overwhelming majority of the contemporary Muslim scholars are of the same view. However, some scholars of Malaysia have allowed this kind of sale. They normally refer to the ruling of Shaf'ite school wherein it is held that the sale of debt is allowed, but they do not pay attention to the facts that the Shaf'ite jurists have allowed it only in a case where a debt is sold on its par value.
In fact, the prohibition of Bai-al-dain is a logical consequence of the prohibition of "riba" or interest. A "debt" receivable in monetary terms corresponds to money, and every transaction where money is exchanged from the same denomination of money, the price must be at par value. Any increase or decrease from one side is tantamount to "riba" and can never be allowed in Shariah. Some scholars argue that the permissibility of Bai'-al dain is restricted to a case where the debt is created through a sale of a commodity. In this case, they say, the debt represents the sold commodity and its sale may be taken as a sale of the commodity. The arguments, however, is devoid of force. For, once the commodity is sold, its ownership is passed on to the purchaser and it is no longer commodity of the seller. What the seller owns is nothing other than money, therefore if he sells the debt, it is no more than a sale of money and it cannot be termed by any stretch of imagination as the sale of the commodity. That is why this view has not been accepted by the overwhelming majority of the contemporary scholars. The Islamic Fiqh Academy of Jeddah which is the largest representative body of the Shariah scholars and is represented by all the Muslim countries, including Malaysia, has approved the prohibition of Bai'-al-dain unanimously without a single decent.
Another type of Islamic Fund maybe of a nature where the subscription amounts are employed in different types of investments, like equities, leasing, commodities, etc. This may be called a Mixed Islamic Fund. In this case if the tangible assets of the Fund are more than 51% while the liquidity and debts are less than 50% the units of the fund may be negotiable. However, if the proportion of liquidity and debts exceeds 50%, its units cannot be traded in according to the majority of the contemporary scholars. In this case the Fund must be a closed-end Fund.
Islamic Investment in India
Islamic Investment in India
Dr.Shariq Nisar
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
Islamic Investment in India
“Wealth Creation” an Islamic Perspective
(Earnings – Savings – Investments)
Research Desk
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Islamic Investment in India
Until recently all that most of us knew about Stock Market was it is located in some Dalal Street, Mumbai!! But now suddenly everyone’s interested in it.
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Why are people investing into stocks?
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What does Islam say on Earning, Saving and Investment?
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What is Shariah Compliant Investment?
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Is Shariah Compliant Investment as lucrative as regular investing?
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How can I invest in a Shariah Compliant Way?
Read on for an enlightening journey towards your financial freedom……
Why should you be investing your money in the first place?
Because your money can create more money for you than you will earn alone by yourself! For eg: Rs.10,000 invested at 20% per annum turns out to be Rs 62,000 in ten years! That’s the magic of what financial experts call compounding.
But Rs.10,000 ‘saved’(kept in a locker, etc) now will remain the same old 10,000 even after 10 years or more. So now you know ‘savings’ don’t grow. Rather its value will further decrease as time goes due to inflation.
What is the Islamic Perspective on earning, saving and investment?
Islam is a way of life that includes all aspects of life, be they individual and social, material and moral, economic and political, legal and cultural, and national and international. In fact earning, saving and investing can become acts of ibadah or worship if done according to the Shariah, in Islam!
“The Shariah is based on wisdom, and on the interests of the people relating to the wordly economy and the Hereafter. It is wholly and solely justice, benevolence, expediency and wisdom. It is sine qua non of well being and success in this world and hereafter.”
Ibn Qayyim (I’lam al-Muwaqqi’in, vol 3. p,1 Maktaba Muniriah, Eygpt).
Earning..
Allah says in the Quran,
“Seek the other world by means of what Allâh has bestowed upon you” (Quran 28:77)
and “Allah has permitted trade and prohibited Riba (Interest)”(Quran 2:245)
Prophet Mohammad s.a.w used to pray
“O Allah, I ask You for guidance, virtuousness and wealth”. (Bukhari) and
“O Allah, give him a lot of wealth and children. Make him live long and forgive him.” (Bukhari)
Saving..
Allah beautifully illustrates the importance of saving in the Quran. Narrating the life of Prophet Yusuf a.s. who takes charge of Ministry of Finance and successfully plans and implements “saving” the produce from first seven years, and using it later so they are not in shortage in years of drought.
Narrated ‘Umar: The Prophet used to sell the dates of the garden of Bani An-Nadir and store for his family so much food as would cover their needs for a whole year (Bukhari)
Investing..
Umar(R.A) used to say: “trade with orphan’s wealth lest it be exhausted by (regular payment of) Zakat”.
Islam clearly encourages savings and investments. Indeed, when Islam imposed Zakah, it required that wealth should be first save (since only if a person Saves will he reach nisaab) and also invest his savings (otherwise it would be exhausted by Zakah over a period of time if kept idle).
The exponential (compounding) growth of even small amount of savings on re-investments, can be gauged from the famous hadith narrated in Sahih Bukhari(Sales and Trade.No.418 Vol 3) in which three persons get stuck inside a cave, when a stone closes the exit of the cave and then each person pray to Allah invoking a Good deed they had done, the last person explains how 3 sa’s of millet(of his employee, which he didn’t get at that time), re-invested repeatedly grew into a heard of cows for which he needed a shepherd to maintain!!
This is how proper investments grow and it also emphasizes the need to invest even our one single day’s earning without it being kept idle.
Islamic Finance is closely related to Islam’s vision of economic development, which gives primary importance to the realization of socioeconomic justice and the well-being (falah) of all humans.
Why buy Stocks?
Whereas you can invest in many different ways like Bonds, Bank Deposits, real estate, gold, etc. the Stock Market has consistently outperformed all these sectors in the last 10 years or so. Indeed not even ‘big’ cash to invest in stocks and to add to if you needed cash for any emergency you can sell and get the cash in a day’s time, which is not the case with other assets like Real Estate.
What is the current Scenario in Indian Market?
India is one of the fastest-growing large economies in the world. A population of over 1.3 billion, with our huge human and natural resources, and with costs very low compared to the global average, India represents economic opportunities on a massive scale. The economy has been growing from 7-10% for the past few years. Consequently, the return from the equity market has also been very handsome.
What are Shariah Compliant Investments or Ethical Investments ?
Ethical investment/ Shariah Compliant Investment is investing with a conscience, choosing investment that reflects your values and beliefs. The investments which are in accordance with the Islamic Principles are called Shariah Complaint.
The unethical investment would be those associated with alcohol, tobacco, vulgar entertainment, gambling, casinos, speculation, corruption, gambling, lending/borrowing on interest(Riba), exploitation of the needy, discrimination of human rights, and the list goes on..
Also excluded are companies if any of the following ratios are grossly abnormal:
1. Total debt divided by trailing 12-month average market capitalization
2. The sum of a company’s cash and interest-bearing securities divided by trailing 12-month average market capitalization.
3. Accounts receivables divided by trailing 12-month average market capitalization.
Islamic rulings used in these financial matters, are derived from the Quran, Sunnah, fatawas and guidelines issued by The Islamic Fiqh Academy, Jeddah, Saudi Arabia, and AAOIFI, Bahrain – “Accounting and Auditing Organization for Islamic Financial Institutions” headed by Mufti Muhammed Taqi Usmani.
Is Ethical Investment/Shariah Compliant Investment as lucrative as regular investing?
This is a fairly genuine concern investors have. Yet statistics have shown that stocks which have passed the ethical screening norms perform better in the long run and are least hit in market downturns.
In a way stronger companies which perform better and which have chances of being least hit in downturn are selected making the process of investing easier by separating the pearls from the scum. This method is similar to methods adopted by major stock market advisory firms including Warren Buffet, Benjamin Graham, Peter Lynch etc. For eg. When these screens are applied the companies which clear them are blue chips like Infosys, Bhel, Reliance, Tata, Wipro, Airtel, ONGC, Ranbaxy, L&T, Cipla, Grasim, Maruti, Godrej, Gmr, Ntpc, Sail, Gail, Videocon, Mahindra, Sterlite, etc who have been wealth creators in their own right.
How do I know if a company is ethical/ Shariah Compliant?
Wealth city does the hard work of screening the entire stock markets to give you a list of Shariah compliant stocks. We keep you updated of all the latest news and also recommend after extensive research which company you can invest in.
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View a Presentation on our Company and Products
http://www.slideshare.net/ajmal.doc/islamic-investments-shariah-invest-halal-stocks-equities-wealthcity-wealth-city-fund-equity-advisory-compliant-markets-india-muslims-shares-trading-picks-tips-bse-nse-list-analysis-money-banking-finance-charts-investing-recommendations
About Us
WealthCity, Chennai, the first of its kind from South India, aims to provide financial and investment solutions for our Muslim Community in India in accordance to Islamic beliefs and teachings.We are the gateway for Islamic Investment in India.
WealthCity has tied up with Religare, a Ranbaxy Group company to bring the best of Shariah Compliant Stock Trading, Mutual Fund, Portfolio Management Services, Real Estate Investment, Wealth Management Services and specific Islamic financial needs such as Zakat, Inheritance Calculation, Hajj saving schemes, etc.
WealthCity uses state-of-the-art technology to provide investors, real-time market news, research with a dedicated team of analysts, advance e-trading platform, etc to pursue their investment goals.
WealthCity is managed by a management team consisting of financial professionals from leading Indian institutes and service oriented individuals who have done commendable public service to the muslim community. It is supervised by a Shariah board of scholars from various international universities like Madina university, Deoband, Jamia Dar us Salam etc.
WealthCity has devised individualized schemes catering to local, regional and international investors who may be individuals or institutions, small scale businessmen, doctors, teachers, engineers, IT professionals, even a common man. Investments can start little and reach as much as anyone needs to.
Contact us for more details.
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