Shariah Index launched, BSE hopeful of quick returns

Monday December 27, 2010 04:27:28 PM, ummid.com News Desk

Malegaon: The Bombay Stock Exchange, Asia’s oldest trading floor, along with the Mumbai-based Taqwaa Advisory and Shariah Investment Solutions on Monday launched an index comprising shares, of India’s top 50 companies that meet the legal code of Islam.

According to The Wall Street Journal Mumbai Correspondent, John Satish Kumar, the BSE TASIS Shariah 50 index was formed using the guidelines of an Indian Shariah advisory board. The barometer consists of the 50 largest and most liquid Shariah-compliant stocks within the BSE 500 Index. The new index was last trading up 0.5% at 1,233.49 outpacing the benchmark Sensex’s 0.4% rise this morning.

"Islamic law doesn’t permit Muslims to invest in companies that derive significant benefits from interest, since usury is considered sinful in the Islamic faith, or from the sale of goods and services that are deemed sinful within the Islamic faith, like alcohol, tobacco and weapons", reports WSJ.

The index can be used for the construction of Shariah-compliant financial products, such as mutual funds.

"Despite being a trillion-dollar industry worldwide, Shariah finance is only at a nascent stage in India, which has one of the largest Islamic markets in the world. Muslims constitute close to 15% of the population", John wrote in his report.

"India’s Muslim population is close to 175 million—roughly even with the entire population of neighboring Pakistan—and 60% of the community is under 25 years of age. Over a third of India’s Muslims live in cities, according to a study by KPMG consultants and the Taqwaa Advisory", he added.

A November 2006 report by a committee headed by Justice Rajender Sachar reported that almost 50% of the community’s population is excluded from the formal financial sector in India.

Another report by the Reserve Bank of India puts the credit-to-deposit ratio among Indian Muslims at 47% against the national average of 74%. That means that compared to what they save, Indian Muslims are borrowing money that could be used to start a business or purchase assets at a far lower rate than the general population.

It isn’t yet clear how much the Shariah 50 will go towards fixing that situation, or whether it’s more likely to function as a way to make India an attractive destination for foreign Islamic finance.

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