SCOPE OF ISLAMIC INVESTMENTS IN INDIA

Islamic finance industry has undergone a transformation in the last few years. Today it has started asserting itself as an alternate system of finance. This industry has made a mark by its rapid growth not only in Muslim countries but also in other secular and developed nations as well [Britain is the largest issuer of Shariah bonds (Sukuk)]. Diverse Shariah compliant financial products, which include banking products like savings and current accounts (based on Wadia and Qard), (Mudarabah based) investment accounts, financing products such as Home financing and Ijarah, insurance products and capital market products like Mutual Funds, Portfolio Management Services and Stock broking, are being offered in both Muslim and secular countries.

Shariah compliant products are based on the principles of Shariah. Shariah means Islamic law, but that does not imply that a Shariah-compliant product is restricted for persons professing a particular religious faith. According to Shariah principles, dealing in interest-based transactions, investing in harmful and unethical sectors like Alcohol, Tobacco, Firearms, Pornography and Gambling, etc are prohibited.

In India Muslims are second largest population after Indonesia, Indian Muslims population is estimated to be around 150, millions. In spite of this India is routinely ignored in the vast majority of the books articles on the subject of Islamic banking and or investments. Dow Jones has Islamic index, FTSE of Britain has not only Islamic Index but also a full fledge Islamic bank, but unfortunately there is not a single Islamic Product or an Islamic benchmark in Indian investment environment.

In Indian Financial market there are adequate number of Shariah compliant stocks are available offering better ROI (return on investment). The aggregate PAT to Total Income ratio of the all listed stocks is 7.5% as compared to 8.7% for Shariah compliant stocks. It clearly proves that although the universe of all listed stocks is large as compared to that of Shariah compliant stocks, but in terms of profitability it ranks below the Shariah compliant stocks.

Financial institutions like Mutual Funds, Insurance, Portfolio management services, etc can use these Shariah compliant stocks to build profitable Shariah compliant investment portfolios and offer Shariah compliant investment products to Shariah conscious investors. They can attract the large segment of Muslim investors who have kept themselves away from the financial market till date. Besides they can also attract investors from other sections of society who do not wish their funds to be invested in companies involved in alcohol production, meat Industry, tobacco and other socially harmful activities, as companies engaged in these activities are removed during the Shariah screening process.

 

Shariah Investment is an investment fund which meets all of the requirements of Shariah law and the principles articulated for "Islamic finance." Shariah-Compliant Funds must follow a variety of rules, including investing only in Shariah-compliant companies, appointing a Shariah board, carrying out an annual Shariah audit and purifying certain prohibited types of income, such as interest, by donating them to a charity.

Shariah-Compliant Funds have expanded in popularity only recently, even though the concept was first developed in the late 1960s. The concept requires considerable effort to implement, since much attention must be paid to compliance with the Shariah principles, both at the fund operations level and for all underlying investments.

Shariah-Compliant funds are prohibited from investing in companies which derives income from the sales of alcohol, pork products, pornography, gambling, military equipment or weapons. Shariah allows for a small portion of an investment's income to come from prohibited sources, though a Shariah-Compliant fund cannot profit from this income. Instead, it must separately account for these earnings and donate them to a charity.

While the roots of Islamic finance lie in ancient Islamic principles, the development of Islamic finance as an industry is relatively new. Developing at a remarkable pace of about 10-15% a year, this industry now represents a vast global practice which has developed a worldwide presence.

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 increasing oil prices. This increasing income is fuelling an increase in demand for new Islamic financial instruments along ethically-aware Shariah principles as an alternative to conventional commercial banking and investment products.

The share of the US in the world’s GDP is expected to fall (from 21% to 18%) and that of India to rise (from 6% to 11%) by 2025. The rising GDPs of emerging nations like India have opened up newer investment avenues for rich Islamic investors from the Gulf. In addition, there is tremendous scope for developing and marketing new Islamic financial instruments and Shariah-compliant funds in India.

About Pragmatic Wealth Management Pvt. Ltd.

ABOUT US

Pragmatic Wealth Management Pvt. Ltd. (PWM) founded by Mr. Imtiaz Merchant in 2008 is a Shariah Wealth Management Advisory company with clear focus on Islamic Investments.  It aims to tap the hugely unexplored market of Shariah Compliant Investment. The company is registered with Registrars of Companies (ROC). The company also has approval from SEBI to run the stock broking business. PWM is of one of the pioneers of Shariah Investment Services equipped with strong experts having technical expertise as well. PWM endeavors to create awareness about investments in the “Islamic Way”, with a clear mission to popularize the investments through social responsibility and ethics for which PMW has developed various brands registered as “Islami Tijara”, “Adaaf Advisory Services”, etc.

OUR MANAGEMENT

Imtiaz Merchant- Managing Director

Mr. Imtiaz Merchant is a Commerce Graduate from Mumbai University and holds a diploma in Marketing Management. He is a Fundamental and Technical market Analyst, with 14 years of experience.  Mr. Merchant is well-versed with the Islamic Finance Market and the Shariah Compliance norms for investments. He has spent year of extensive efforts to understand the principles of Islamic Finance and has been in constant discussions with Islamic Finance scholars and experts. He has the privilege to create Shariah Compliant Stock Universe and various investment portfolios for investment.

Ayzaz Rehman Motiwala- Director

Mr. Ayzaz Rehman Motiwala is a commerce graduate. He has 10 years of experience in stock market. He is also part of the research team of Pragmatic Wealth Management, and he is good at picking stocks for investments based on fundamental studies. He has decent knowledge of Islamic investments.

Abdul Rashid Ansari- Director

Mr. Abdul Rashid is a business man in leather exports, being Director of the Pragmatic Wealth Management P.Ltd., he looks after the accounts and finance affairs of the company. Through his contact he is instrumental in getting business for the company.

OUR ACHEIVEMENTS

Islamic Investment Finance Board (IIFB): Pragmatic Wealth Management P. Ltd (PWM) formed IIFB in 2009. PWM receives approval of Islamic investment products from Islamic Investment Finance Board (IIFB), an independent Shariah Board and it is a non-profit organization governed under the adept leadership of Maulana Mohammad Wali Rahmani, the Secretary of All India Muslim Personal Law Board. The IIFB comprises of eminent Muftis and Aalims from across the country, namely, Maulana Khalid Saifullah Rahmani, Maulana Fuzailur Rehman Hilal Usmani, Mufti Shoibullah Khan, etc. The primary responsibility of the IIFB is to ensure that all the Islamic investments made are Shariah compliant and to issue Shariah certificate.

Shariah Compliant Stock Universe: PWM since its inception has screened Indian equity market on Shariah norms. As on 31st March 2014, 646 companies in Bombay Stock Exchange (BSE) are Shariah compliant, based on the norms approved by the Shariah board (IIFB) and its total market capitalization is 55.24 percent of the total BSE market capitalization. Out of these 646 Shariah compliant stocks, PWM has selected 211 top companies for investments and the market capitalization of these top 211 Shariah compliant Stocks is 53.09 percent of the total BSE market capitalization.

Shariah Index: PWM has successfully created 14 Shariah indices, 5 Sized based and 9 Sector based in 2009.  These Indices comprise Shariah compliant stocks that successfully have passed the Shariah Screening Norms on Industry and financial Ratio filters.  We have created a unique methodology to create these indices. All these indices are backtracked to 2006 and it has been observed that they outperform most of the benchmarks. The indices are the Copyright of PWM. (For more details and live index prices please visit www.pragmaticwealth.net)

Islamic Finance Magazine: In the year 2010, PWM has initiated India's premier quarterly Islamic finance magazine 'Islami Tijara'.  Islami Tijara delivers to its discerning readership a mix of exclusive contributions. It provides an in-depth coverage of Islamic Finance and Investment opportunities. It aims to enhance the knowledge on Islamic Finance which is a burning need in today's dismal economic scenario. Every issue of Islami Tijara speaks about Islamic Finance in Qur'an, Hadeeth and Fiqh, provides Comprehensive Research Reports on Companies, Industries, Markets and Economy. Articles from the reputed Writers, Columnists, Islamic Scholars and Financial Experts are published. Islami Tijara covers news and interviews also on Islamic Finance. (website: www.islamitijara.com)

Shariah Portfolio Management Services (PMS):  In August 2011, PWM entered in a strategic tie-up with Bonanza Portfolio Ltd (BPL) 5^th largest stock broker in India and launched Shariah Portfolio Management Services (PMS) called ‘Bonanza Pragmatic Shariah Fund’ (BPS-Fund-PMS). Wherein PWM is advisor and Bonanza looks after marketing and the operations of the funds. This fund will also be marketed globally. The objective of the fund is to secure long term gains from the investments in the combination of large and mid size companies, spread over 9 islamically permissible sectors which are Shariah compliant. The minimum investment size is Rs. 25 Lacs. This scheme is approved by the SEBI. (website: www.shariahpms.com)

Shariah Stock Advisory Services:  PWM have developed a paid Shariah Stock Advisory Services in 2012 under its brand name Adaaf Stock Advisory Services and following services are offered namely Top-Picks Report, Daily Newsletters, SMS Calls, Portfolio Restructuring Services and a search engine for Shariah complaint stocks. To facilitate the services PWM have develop a dedicated website called www.adaafadvisory.com.

Shariah Broking Services: Our company PWM has received the Stock Broking license from SEBI vide SEBI REG.NO. INB071490636 on July 28, 2013 and we are now trading member of Madhya Pradesh Stock Exchange. By virtue of MPSE member our clients can trade in both BSE & NSE. We provide top class research services and online trading facilities to our trading member.

Hyderabad Branch: To cater to the increasing demand of Shariah complaint products and services from South Indian region, PWM went for an expansion programme and established a branch in the heart of Hyderabad city in May 2014. It has top class back office and professional marketing team to target South India clients.

BANKING IN ISLAMIC FINANCE

-Zohaib Bin Akbar

The recent global financial crisis has opened a debate over the loopholes in conventional banking system. Many scholars and finance experts are of the view that Islamic banking industry is an alternative to the conventional banking system, which is foolproof enough to restrict any other financial crisis in the future.

Although the Islamic banking industry has been operating from the past 30 years in the Middle Eastern countries, yet it has gained popularity and curiosity around the globe after the financial crisis of 2008. The main objective of Islamic finance is to create a society of investors, unlike the conventional banking system, which has made and created the society of borrowers and lenders from the past 800 years.

Islamic banking activities are to promote public interest, prevent malpractices, contribute towards the development of socio-economic justice and create investment society not a debt-ridden society. They focus on the real sector of the economy.

All financing under Islamic banking is asset backed, i.e. every financial activity should have an under lying asset. There is a concept of IWADH in Islam, which is one of the pillars of Islamic banking. It states that every economic activity undertaken should involve certain amount of ‘risk’, there should be ‘hard work’ or ‘effort’ put in it and there should be a ‘liability’ involved.

The three main things, which are not allowed under the purview of Islamic banking, are Al-riba (interest or usuary), gharar (extreme uncertainty), mysir (gambling). Anything in excess for which no effort or hardship has been put in is considered as riba. Thus, Interest is one form of riba and therefore, it is not allowed in Islam. Gharar refers to the extreme uncertainty or it may be referred as what we have today is speculation. Mysir refers to the game of chance. For example, gambling or betting, which is not allowed as it leads to a zero some game. In gambling the future outcome of an event is predicted without proper collection of facts, analysis and interpretation.

Every product that Islamic bank offers is based on contracts like Mudaraba (partnership),  Musharaka (joint venture), Murabaha (cost-plus), Ijara (leasing), and some hybrids combining two contracts (Musharaka Mutanaqisa) etc. Islamic bank involves itself in real time trading or investment activities by doing partnership with its customer through the above-mentioned contract of Mudaraba, or may be by the contract of joint venture (Musharaka) and therefore earns profit. The other sources of revenue for the bank are the service charge that they earn for providing facilities of letter of guarantee or letter of credit to its customers, either corporate or individual.

Today, Islamic banks around the world have a bigger non-Muslim customer base than Muslim counterparts. Many conventional banks like HSBC, Citi, Standard Chartered, RBS, etc have started Islamic banking windows.

It regards the public interest above all other motives or objective. Moreover, the creditor and debtor relationship in the conventional banking system have widened the gap between the rich and the poor (i.e., the rich are getting richer and vice-versa), and have become a real cause of many financial crises over the years and around the world.

Many countries around the world have already made necessary regulatory changes to pave way for Islamic banking. Today; Islamic banking is not only in the Muslim world but also in many non-Muslim countries. Malaysia is the hub for Islamic finance in Asia and it is competing very closely with UK to become the hub for Islamic finance in the world. Even countries like France have recently made necessary changes in order to attract Islamic finance investments. Soon Indonesia, which has the largest Muslim population in the world, is going to kick start the Islamic banking in the country.

India, which has the second largest Muslim population in the world, with a sound and strong economic fundamentals and being the second fastest growing economy, should also fasten up the desired regulatory changes and work towards the implementation of Islamic banking in the country.