Pressures Shelve India’s Islamic Finance

DELHI – State Bank of India (SBI) Mutual Fund has deferred the launch of Shari`ah Equity Fund in India, aimed at attracting investments from the country’s Muslims, sparking rumors that the promising fund was suspended after pressures from Hindu groups and parties.

“I don’t know what happened but in this country if the name of Muslims is associated with anything then it becomes controversial,” Iqbal Ahmed, who was waiting for such a fund from a state-run bank which provides more safety to its customers, told OnIslam.net. “This should have given an opportunity to large number of small Muslim investors to get a handsome return on their investments, which they have been denied so far,” he added.

Speculations are rife that the decision to stall the scheme was taken under pressure from some politicians close to the ruling Bharatiya Janata Party (BJP), who were against the fund to be launched keeping in mind a particular community.The fund was to be launched earlier this month by the mutual fund wing of SBI, India’s largest nationalized bank.

The launch of this fund would have made India the second non-Islamic country after United Kingdom where a Shari`ah fund was launched by a nationalized bank. “It was against the law to bring out a fund based on a particular religion or caste. Securities and Exchange Board of India (SEBI) should not have supported a fund like this one,” he added.“I was surprised that the scheme was to be launched by a subsidiary of SBI,” India’s former Finance Minister Yashwant Sinha told OnIslam.net.

SEBI is the regulatory body for the investment and securities market in India. Islam forbids Muslims from usury, receiving or paying interest on loans. Islamic banks and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.

Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.

BJP Pressures

Many people believe that some political leaders of ruling BJP were behind the stalling of the scheme. However, SBI Mutual Fund rejected such rumors as baseless. “The decision to defer the scheme was taken to further discuss issues like returns, company commission etc.,” SBI Mutual Fund said in a statement cited by OnIslam.net.

“All, not just Muslims, were free to invest in this mutual fund.” India has Shariah funds being run by American Goldman Sachs, Tata and Taurus but not so far by a nationalized bank.  The Tata Ethical Fund is the oldest and largest Shariah-compliant fund in India. From the very outset, SBI has been insisting that the scheme was to be launched by SBI Mutual Fund and not by SBI.

India’s Finance Minister Arun Jaitley had said, “Any bank is free to start any scheme as per the norms laid down by Reserve Bank of India (RBI). I must also make it clear that the scheme has nothing to do with the Finance Ministry.” In the Bombay Stock Exchange, the performance of Shariah-compliant companies is better and returns from Shariah funds are better than other index of the exchange.

In the last few years, Shariah funds have become popular not only among Muslims but others as well. Muslims in Gujarat and other states had welcomed the SBI’s decision to launch this scheme as they felt that Shariah Mutual Fund by the largest Indian bank would give them an opportunity to earn halal money.

There are some 160 million Muslims in Hindu-majority India, the world’s third- largest Muslim population after those of Indonesia and Pakistan. For many Indian Muslims, the introduction of Islamic funds would have allowed them to invest their money in Indian share market.

However, the SBI’s decision to defer the scheme came as a surprise to majority of Muslims, feeling that the SBI should have gone ahead with their decision. Some feel the government also missed an opportunity to use the funds lying with large Muslim population.

“I believe it was a win-win situation for both the government and the investors,” said Zafar Ijaz, a youth quite active in Indian share market. “The money which was lying idle with Muslims would have come into the market and helped the economy. And investors would have got a reasonable return.”

Originally published on www.onislam.net