Takaful Emarat partners with NCB Capital

As part of the alliance, Takaful Emarat will offer its customers a range of 21 Shari’ah-compliant funds managed by NCB Capital.

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UAE-headquartered Takaful Emarat, a Shari’ah-compliant life and health insurance company, has announced their partnership with NCB Capital, Saudi Arabia’s largest investment bank and the GCC’s leading wealth manager, to make world class Shari’ah-compliant funds accessible to its customers. Continue reading

Sharia-compliant Islamic Banking in India, a wealthy proposition

Gold, two steps ahead: how the rich keep getting richer. New gold rpt Globally, Islamic finance is estimated to be worth about $300 billion, growing at 20% annually. With this growth, the need for Shariah compliant financial products has also increased. The product offerings are similar to normal banking products; however the main difference is that the funds collected are not for the purpose of accumulating/ paying interest or invested in any negative businesses that harm morality of the society. The basic principle of Islamic banking is the prohibition of interest.

India with a 13% Muslim population, the highest in a non-Islamic country, should have been in the forefront of Islamic banking initiatives, but it is yet to be permitted here. It will hugely benefit the Indian economy by attracting investments from the cash rich Middle Eastern economies on the lookout for new investment destinations. Five Indian companies, Reliance Industries, Infosys Technologies Wipro, Tata Motors and Satyam Computer Services figure in the Standard & Poor’s BRIC Shariah Index. Continue reading

Shariah funds do well in mildly bearish times

Shariah-compliant mutual funds are probably not the best performers in a bullish market of current times, where the rally is primarily driven by banking stocks. But in a slightly bearish market these funds give decent returns.

Shariah funds do well in mildly bearish times

Shariah funds do well in mildly bearish times

In India, this type of funds is yet to become popular among the masses. As a result, currently, the number of this kind of mutual funds is just a handful.
But we may see more fund houses coming up with such funds in the time to come. Currently, Taurus Mutual Fund has Taurus Ethical Fund, Benchmark Mutual Fund has Shariah Benchmark Exchange Traded Scheme and Tata Mutual Fund has the Tata Select Equity Fund. If you are planning to invest in these funds, then below are a few points that may help you to understand them.

What are Shariah-compliant funds?
Shariah-compliant funds are investment vehicles governed by Islamic laws and fully compliant with the principles of Islam.

What is meant by compliance to the principles of Islam?
Shariah-compliant funds are prohibited from making investments in industries categorised as morally deficient, such as those related to gambling or alcohol. This is because Islam does not allow any form of exploitation. Any kind of investment in conventional banking is outlawed. With the concept of debt also contrary to the principles of Islam, investment in highly-leveraged companies is also not permitted for Shariah-compliant funds. These funds do not invest in sectors such as liquor, tobacco, consumer goods, finance and banking and in interest bearing securities.

What are their current assets under management?
The three funds mentioned above currently manage assets worth Rs170 crore.

Are the investors in these funds only from the Islamic community?
According to a couple of fund managers, majority of the investors in these funds are from non-Islamic community.

In which markets do these funds perform well?
According to fund managers these funds perform well in a bearish market and not in bullish market of recent times. That is because the current rally in the market is led by stocks in the banking sector and Shariah-compliant funds do not invest in banking stocks.


Untapped $105 Billion Endowments May Boost Shariah Funds: Islamic Finance

Managers of Islamic endowments with $105 billion in assets are seeking to diversify out of bank deposits, providing Shariah-compliant funds with the chance to capture new business, Ernst & Young LLP says.

Untapped $105 Billion Endowments May Boost Shariah Funds: Islamic Finance

Untapped $105 Billion Endowments May Boost Shariah Funds: Islamic Finance

These “largely untapped” endowments, or awqaf, have as much as $40 billion of cash parked at commercial banks, Ashar Nazim, Manama-based executive director and head of Islamic financial services for Ernst & Young, Bahrain, said in a telephone interview Nov. 9. Awaqf typically consists of cash or assets, including land and buildings, donated by individuals or institutions for charitable and religious purposes.

“Over the next 18 months, the Islamic endowment segment could prove to be a major stimulus for growth in the Islamic funds industry,” Nazim said. “They realize that they cannot manage it on their own and they need to involve the formal financial industry.”

Assets held by Islamic funds have stagnated at around $52 billion since 2008, according to Ernst & Young in its Islamic Funds & Investment Report published in May. The combined wealth of the Middle East’s more than 400,000 millionaires grew 5.1 percent in 2009 to $1.5 trillion, Cap Gemini SA and Bank of America Corp.’s Merrill Lynch unit said in June.

Islamic endowment institutions should diversify their real- estate holdings into government sukuk and other products, Nida Raza, senior vice president of capital markets at Bahrain’s Unicorn Investment Bank BSC, said in telephone interview yesterday from Manama.

Property Slump

Real-estate prices have tumbled more than 50 percent since their 2008 peak in Dubai and 30 percent in neighboring Abu Dhabi as banks tightened mortgage lending and speculators fled the market. Property is used as collateral for Shariah-compliant bonds, which are backed by assets and pay a share of profit instead of interest.

“The demise of real estate in the global market has woken a lot of people up,” Raza said. “For the awqaf, a long-term investment meant real estate, but as more and more products are realized in the Gulf region, more longer-dated sukuk and sukuk funds, you’ll start seeing the diversification from the endowment fund perspective.”

Global sales of Islamic bonds fell 29 percent to $13.7 billion this year from the same period in 2009, according to data compiled by Bloomberg.

Shariah-compliant bonds returned 12 percent this year, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index, compared with a 15.5 percent gain in developing markets, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.

Markets in Bahrain, the United Arab Emirates, Dubai, Kuwait and Qatar are closed Nov. 16-18 for the Eid Al-Adha holidays, Nov. 16-17 in Saudia Arabia and Nov. 17 in Malaysia.

Bahrain’s Research

As much as 80 percent of assets owned by Islamic endowments are donated real estate, Ernst & Young’s Nazim said. Islamic mutual funds account for 5.5 percent of the estimated $939 billion Shariah-compliant industry, according to the company’s May report.

“These are prime properties, with huge scope for enhancing value through professional investment management of the portfolio,” Nazim said. “While awqaf institutions have been successful in mobilizing donors’ money and disbursing it for the defined causes, they typically don’t possess asset management capabilities.”

Bahrain’s Waqf Fund, started in 2006 with $4.6 million from the central bank and Islamic financial institutions, provides money for training and research on the industry, according to the bank’s website.

Malaysian Program

Maybank Islamic, the Shariah-compliant unit of Malaysia’s largest lender, started a awaqf program in July that will allow Muslims to make religious donations through the bank, Abdul Wahid Omar, chief executive officer of Malayan Banking Bhd., said on Aug. 20. Maybank Islamic will then work with awaqf to manage the funds, he said.

The yield on Malaysia’s 3.928 percent Islamic note due in June 2015 climbed 12 basis points today to 2.79 percent, according to prices provided by Royal Bank of Scotland Group. The extra yield investors demand to hold Dubai’s government sukuk rather than Malaysia’s was little changed at 368, according to data compiled by Bloomberg.

The difference between the average yield for sukuk and the London interbank offered rate widened 1.5 basis points to 333 points on Nov. 12, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index.

“Any kind of infusion of new opportunities, whether it’s in the form of cash or human resources, that’s significant for the industry,” Shaykh Yusuf Talal DeLorenzo, Dubai-based chief Shariah officer and board member of Shariah Capital Inc., said in an interview in Dubai on Nov. 11. “Asset managers really haven’t had the opportunities to interface and work” with endowment institutions.


Scope of Islamic Finance in India

Scope of Islamic Finance in India

Islamic Finance News
9th January 2009

Islamic Banking or Shariah Finance although a 15-20 year old legacy, has caught up only recently in the past 3 – 4 years. Currently estimated to be worth approximately USD $ 750 billion; this industry is growing at a remarkable pace of approximately 15% – 20% per annum and represents a vast global practice which has developed a worldwide presence (Source – The Banker, UK).

Shariah compliant products in the Retail and Investment Banking space are helping to unlock trillions of dollars of funds lying dead with high net worth individuals and corporates globally, who follow Shariah principles as their day to day business and investment philosophies and thus do not participate in usual financial transactions.

Despite having one of the largest Muslim populations in the world (estimated to be around 160 million, second only to Indonesia) and a strong demand for Shariah – compliant products from the community as well as the business sector, India currently 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.

Indian Economy – An Overview

The global financial system has undergone a period of dramatic turbulence, which has caused a widespread reassessment of risk in both developed and emerging economies.

However, despite the global nature of these events, emerging markets – and particularly Asian banks – have managed to avoid the very worst of the crisis. Growth has slowed down but at the same time, remained steady and at a level which some Western economies can only dream of. We believe India’s financial sector continues to be relatively insulated from the global meltdown and that the domestic economy still provides an opportunity for investors looking for sustainable returns in the medium to long term.

The Indian economy is amongst the largest emerging market economies (US$ 1 trillion) and believed to be amongst the most attractive growth opportunities globally. In fact, according to a Goldman Sachs report – BRICs and Beyond, January 2007, India’s GDP (in USD terms) is expected to surpass that of the US before 2050, making it the world’s second largest economy.

Also, the Indian capital market is well regulated, the stock markets in India, we believe, are amongst the most developed and organized markets in the world and the National Stock Exchange and the Bombay Stock Exchange are at par with the best in the world.

To gauge the scope of Islamic investments in the Indian stock market, it is imperative to examine the underlying opportunity in this sector. Below are findings from a thorough study conducted by Dr. Shariq Nisar, an eminent personality in the field of Islamic Finance in India.

Islamic Finance Opportunity in India

The world’s economic centre of gravity is gradually shifting from the established, wealthy economies of Europe, Japan and North America to the emerging economies like China, India and South East Asia, with China and India projected to be the largest economies of the world in the next 50 years.

Improving macroeconomic fundamentals, higher disposable incomes, emerging middle class, low cost and highly competitive workforce, investment friendly policies and progressive reform processes are all likely to combine to make a strong case for India to have a larger share in the overall investment pie.

With this sound economic base and with hundreds of companies complying to the Shariah laws, India offers a large economic opportunity for Islamic investors, who follow Shariah investment and therefore can’t invest in interest-based ventures or in Islamically unethical ventures like tobacco, alcohol, fashion, gambling, vulgar entertainment and conventional finances like banks and non-banking financial institutions.

Realizing the growing need of Islamic investments in India, the Indian government has recently taken a number of steps in this direction. First, a high-level committee appointed by the government to prepare India’s future financial structure recommended interest-free banking for inclusion of Muslims in the financial sector. The Report draws its significance from the fact that this is first time an Indian finance committee has said something on the issue, which hitherto was considered quite sensitive in political circles. This is a good sign for Islamic finance in India.

Recently the financial crisis in the West and the drought of liquidity in this region has made Indian policy makers look for other alternatives of financing. The recent visit of the Indian Prime Minister, although at the fag end of the tenure of the present government, to a couple of GCC countries assumes more significance in this regard. The Indian Prime Minister visited the region along with his Chief Economic Advisor Professor Raghuram Rajan who had earlier recommended Islamic banking in his report to the government.

Taking a cue from these gestures, Indian corporates have also started placing themselves to capitalise on this big opportunity.

To measure in detail 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 study on Shariah Compliant stocks

According to the Dr. Shariq Nisar, “the number of Shariah-compliant stocks in India is much higher than in Islamic countries put together, thus providing immense scope of parking money by Islamic investors”.

Out of the 1269 stocks listed in the NSE on which relevant data is available, 265 are Shariah compliant and out of the 491stocks listed in the BSE on which relevant data is available, 125 are Shariah compliant. The table below gives the number of Shariah compliant companies in India and their contribution to the total market capitalization for the last five years.

Year 2004 2005 2006 2007 2008
Data available for BSE 500 listed companies 465 474 484 494 491
BSE 500 Shariah Compliant companies 116 132 138 123 125
BSE 500 Shariah Compliant companies 116 132 138 123 125
% Shariah compliant market cap of total 31.61 44.01 41.37 28.46 20.14
Data available for NSE listed companies 1238 1272 1301 1310 1269
NSE Shariah Compliant companies 297 329 331 312 265
% Shariah compliant market cap of total 33.53 45.60 42.92 31.84 20.41

Source: TASIS Research

While examining the Shariah investment opportunity in India, it may also be interesting to understand the top sectors that contribute to the Shariah market capitalization in India. Below is a table giving details on the top Shariah compliant sectors, the number of companies in each sector and their contribution to the total Shariah Compliant market cap –

Top Sectors Number of Companies
Computer Software 45
Drugs & Pharmaceuticals 12
Automobile Ancillaries 11
Industrial Construction 8
Contribution of these top 4 sectors to total Shariah compliant market cap 34.69%
Computer Software 19
Drugs & Pharmaceuticals 6
Cosmetics, Toiletries, Soaps & Detergents 5
Industrial Construction 4
Contribution of these top 4 sectors to total Shariah compliant market cap 40.07%

Source: TASIS Research (As on November 30, 2008)

The above study on Shariah compliant stocks and sectors in India is screened by TASIS (an Indian Shariah advisory firm, which has tied-up with Dar al Shariah of Dubai). Dr. Shariq Nisar added that TASIS norms are very conservative in comparison with other screening norms.


Dr. Nisar’s research suggests that with hundreds of Indian companies complying with the economic laws of Shariah, India has now become an attractive destination for Islamic investments. Islamic financial institutions and Shariah conscious domestic investors are finding the Indian stock market a good place to invest. The research further suggests that the Islamic options available in India are wider than those in many Islamic countries. This shows the vast potential that India can tap in the field of Islamic Banking and Finance.


Islamic Investment Opportunities in India

Islamic Investment Opportunities in India

Globally, Islamic finance is estimated to be worth about $350 billion, growing at 20% annually. With this growth, the need for Shariah compliant financial products has also increased. The product offerings are similar to normal banking products; however the main difference is that the funds collected are not for the purpose of accumulating/ paying interest or invested in any negative businesses that harm morality of the society. The basic principle of Islamic banking is the prohibition of interest.

India with a 15% Muslim population, the highest in a non-Islamic country and third highest in the world is slowly becoming forefront of Islamic banking initiatives. It has benefited the Indian economy by attracting investments from the cash rich Middle Eastern economies on the lookout for new investment destinations.

After 9/11, most of these countries started pulling out their investments from the US and Europe because of the fear of freezing of assets. Another reason could be the slowdown in the economies of western countries. A growing Indian economy has created huge interests among Islamic nations. Five Indian companies, Reliance Industries, Infosys Technologies, Wipro, Tata Motors and Satyam Computer Services figure in the Standard & Poor’s BRIC Shariah Index.

Shariah Law

Shariah is Islamic canonical law, which observant Muslims adhere to in their daily lives. Shariah has certain strictures regarding finance and commercial activities permitted for Muslims. It prescribes a set of criteria which needs to be satisfied before a Muslim investor or institution can invest in the equity of a given company.

From the view point of Shariah law, businesses such as those dealing in pork, alcohol, gambling, conventional financial services, media or advertising, tobacco, pornography, music etc are non-permissible for investment. Furthermore, companies have to be screened so that they satisfy certain accounting ratio restrictions.

Shariah Compliant Investment Avenues

Out of 6,000 BSE listed companies, approximately 4,200 are Shariah compliant. The market capitalization of these stocks accounts for approximately 61% of the total market capitalization of companies listed on BSE. This figure is higher even when compared with a number of predominantly Islamic countries such as Malaysia, Pakistan and Bahrain. The growth in the market capitalization of these stocks was more impressive than that of the non-Shariah compliant stocks.

The software, drugs and 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. Further on examining the BSE 500 the market capitalization of the 321 Shariah compliant companies hovered between 48% and 50% of the total BSE 500 market capitalization.

Stock Market

Under Islamic banking, the conditions for investing in shares are:

1. The company’s activities should not include liquor, pork, hotel, casino, gambling, cinema, music, interest bearing financial institutions, conventional insurance companies, etc.

2. 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 companies manufacturing, selling or offering liquors, pork haram (prohibited) meat, or involved in gambling, night club activities, pornography, gold trading, advertising and media (with the exception of newspapers)

3. If the main business of the companies is halal (lawful), like automobiles, textiles etc, but they deposit their surplus amounts in an interest-bearing account or borrow money on interest, the shareholder disapprove such dealings.

4. If income from interest-bearing accounts is included in the income of the company, the proportion of such income in the dividend paid to the shareholder must be given to charity, and must not be retained by investor.

5. The shares of a company are negotiable only if the company owns some illiquid assets. If all the assets of a company are in liquid form, i.e. in the form of money, they 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.

6. For companies whose main activity is not un-Islamic but a part of their income is not purely Islamic or a minor part of it comes from un-Islamic activities are prohibited, for example hotel, sugar, entertainment etc.

Once companies are chosen from the above criteria, further screening is done on the basis of following financial ratios:
1. Exclude companies if Total Debt divided by Trailing 12-Month Average Market Capitalization is greater than or equal to 33%.
2. Exclude companies if the sum of Cash and Interest Bearing Securities divided by Trailing 12-Month Average Market Capitalization is greater than or equal to 33%.
3. Exclude companies if Accounts Receivables divided by Total Assets is greater than or equal to 33%.
4. Exclude companies if they have any interest bearing income more than 5% in any condition.

For profits made through capital gains, the accepted rule is that if requirements of the ‘halal’ shares are observed, then 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, so the whole price of the share therefore, may be taken as the price of the ‘halal’ assets only.

Mutual Funds

Another opportunity is mutual fund which is based on 100% equity. These funds are invested in different sectors like IT, automobile telecommunication, cement and a few present in interest based financial institutes, almost 10 to 15 %. So investor has to purify that amount from the profits. And also there are many sectoral funds which invest only in a particular sector like automobile, Oil & Gas, etc.

Here are some of the most common types of the Shariah compliant funds and their basic investment profile, which an investor must know before leaving his/her hard-earned money at their disposal.

Equity Funds: As the name suggests, equity funds invest the money pooled in from the investors into stocks. Equity MFs are further classified into sub-categories depending upon the asset classes such as large-cap, mid-cap and small-cap, sectors or themes. Equity funds carry a bigger risk profile than the bond funds.

Sector Funds: Sector funds invest in the stocks of one particular sector and these funds are generally conceptualized after some sector catches fancy of the market or when there is any significant buzz for some major growth in a particular sector. For example, the infrastructure sector is the current favourite in the MF circle, while a few other sectors with exposure to the country’s infrastructure growth are also finding favour.

However, sector funds do not offer the much-desired diversification to the MF investors and often these funds enter the market after most of the growth has already materialized in that particular sector. However, there are certain defensive sectors like FMCG and pharmaceuticals, which consistently witness some modest growth with limited volatility.

Index Funds: The index funds primarily invest in the constituent stocks of a particular market index, such as Sensex and Nifty, and most often track the movements of those indices. While during a bull run, index funds can give impressive returns, the losses are also sharp during the bearish phases of the market. However, the index funds are known to given good returns in the long term, as their portfolio generally consist of stocks with proven track record. Here however you have to consider purification as quite a few banking stocks are there in the current index.

Growth Funds: These funds invest in growth stocks, or the stocks of those companies that are likely to see a sharp rise in their sales and profits. These funds seek to cash in upon the rise in the share prices of these companies, driven by their bulging sales and profit books.

Real Estate

The real estate sector is attracting investment from Middle East, as fund raising has got difficult in this sector. India has so far seen investments of over $500 Million for middle-east investors in real estate sector. Investing in real estate is relatively better than stocks or mutual funds where risk and uncertainty are very high.


India as compared to many other developing countries has been a star performer in recent years, both in terms of returns and attracting funds from overseas. Economic reforms, successful services industry, growing manufacturing activity, high corporate profitability, buoyant equity markets, robust merchandise exports and imports and lead indicators of service sector activity all point to a brightening of prospects for the Indian economy in the future. Consequently, the return from the equity market has also been very handsome.

As we mentioned earlier, around 30% of Indian stocks are believed to be Shariah complaint, but very few companies realize the potential, which is primarily due to non-availability of data on Shariah based investment appetite among local Muslims.

Investors, local as well as global, will find Indian stock market a better place to invest, and sectors like IT, pharmaceuticals, automobile, energy, cement, steel and mining to choose from. Islamic financial institutions that are looking for investment opportunities beyond the Arabian Gulf can find Indian stock market a very good place to put their funds.

Edited from – http://www.indianmoney.com/article-display.php?cat_id=1&sub_id=12&aid=122&ahead=Islamic%20Investment%20Opportunities%20in%20India