Monday, 4 May 2015

Islamic Investment 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 investments in India. Taking a cue from these gestures, Indian corporate have also started placing themselves to capitalise on this big opportunity.

The most important principles on which the modern Islamic finance framework rests on:
1.       Prohibition of the payment or receipt of interest: Money itself is considered to have no intrinsic value-it is merely a store of wealth and medium of exchange.
2.       Prohibition of uncertainty or speculation: Everybody participating in a financial transaction must be adequately informed and not cheated or misled. Derivatives and debt financing is prohibited.
3.       Prohibition of financing certain economic sectors: Investment is forbidden in what are considered to be socially detrimental activities like gambling, pornography, alcohol, armaments, etc.
4.       Importance of profit and loss sharing: The investor and investee must share the risk of all financial transactions; and
5.       Asset-backing principle: Financial transactions should be unpinned by an identifiable and tangible underlying asset.

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Dr. Nair Road, Agripada, Mumbai Central (E), Mumbai 400011
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