Shariah Compliant Investments in India

Topics: Sharia, Islamic banking, Stock market Pages: 8 (2437 words) Published: January 31, 2011

Islamic finance is one of the more interesting side stories in the current financial world and has rose to prominence lately. Egypt was the first country to experiment with this form of practice. Over the years, Islamic finance has grown tremendously all around the world with established agencies like Standard & Poor’s (S&P), Dow Jones, FTSE and others developing their own Shariah compliant stock indices. There is a huge amount of untapped investment potential in India as we are the second most populous Muslim nation in the world after Indonesia. A lot of potential investors are staying away from the stock market as they feel the companies that are listed on the Stock exchanges are not Shariah compliant. This article looks at the tremendous potential that can be harnessed through the Indian stock market if the Shariah compliant investment opportunities can be brought to the notice of the huge Muslim population who are staying away due to their religious beliefs.

The Indian Stock Market has been experiencing a steady rise, at times meteorically, and has moved from the magical 5000 mark in Oct 1999 to the latest 15000 mark in July 2007. Several people who had not been initiated into investing in options other than the traditional fixed deposits & government bonds till 2000 are now experimenting with investments in mutual funds and stocks. India is also one of the few fortunate countries where more than half the national population is young and in the productive age-group. Young professionals earning monthly five figure salaries, middle aged investors and even retired old hands are investing in the stock markets and are ready to deal with the risks - return fluctuations. There is now awareness that stock markets or indirect investments in mutual funds are a good option.

Unknown to many, there is a huge chunk of Islamic investors among these potential investors who are genuinely interested to invest in stocks but who shy away due to reasons dictated more by religion than by personal preference. Their daily life is governed by a set of rules called ‘Shariah’ laid down in the Holy Qur’an and every Muslim is bound to follow these in their work & personal life. Some of our modern-day investment practices do not comply with the doctrines laid down in the Shariah Code of Conduct.

To tap into this extremely affluent and high potential investor base, companies in the financial services are engineering new instruments for investment that comply with the Shariah laws. These are called Shariah Compliant Investments. This area has received high levels of attention from the people who do Financial Engineering and design new funds as they have identified the enormous potential and size of this market segment. Almost all major companies in financial services sector are coming up with Shariah compliant funds since the last two or three years.

* Research Scholar, Department of Management Studies, Kannur University, Kerala. E-mail:

Islamic Finance
The Holy Qur’an in the verses of Surah Al-Baqarah states that:

“Allah has allowed the sale and prohibited interest.” (Verse 2:275)

“O ye who believe! Fear Allah and give up what remains of your demand
for riba, if ye indeed are believers.” (Verse 2:278)

“If you do it not, take notice of war from Allah and His Messenger. But if
ye turn back, ye shall have your capital sums. Deal not unjustly and you
shall not be dealt with unjustly.” (Verse 2:279)

The word ‘riba’ in Arabic means ‘interest’ and the Holy Qur’an explicitly prohibits the earning or giving of interest on any form of loans or investing. The followers of Islam consider the Qur’an as the guide for proper and ethical living. Most of the current business practices in investment are aimed at earning interest, whereas this is directly against what the...
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