SBI set to launch Shariah-compliant mutual fund

  • Jayanth Jacob and Zia Haq, Hindustan Times, New Delhi
  • Updated: Nov 25, 2014 00:48 IST

The State Bank of India (SBI) will launch a Shariah-compliant mutual fund next month, the first time a state-owned bank will roll out an Islamic financial instrument for the country’s estimated 170-million Muslim population.

This will make India the second country outside the Islamic world to have a state-owned bank making a Shariah-compliant offering, after the UK, which in June issued sovereign Islamic bonds.

An SBI official said the country’s biggest lender had received all clearances to launch its Shariah Equity Fund, including from the Reserve Bank of India and the government.

Supporters have long argued for Shariah-based banking in the country and the previous UPA government asked the SBI to undertake a feasibility study.

Islamic banks offer financial products, such as Sukuk bonds and equity funds that don’t charge interest, as it is prohibited in Islam. They treat investments on the basis of the performance of their underlying assets, in which both profits and losses are shared. They also avoid economic activity deemed sinful, such as speculative trading or sale of intoxicants, such as alcohol.

The All India Muslim Personal Law Board (AIMPLB), the country’s apex body on Shariah law, lent its support to the move, with AIMPLB general secretary Maulana Nizamuddin saying it was not opposed to the plan if interest was not involved.

Lucknow Eidgah Imam Khalid Rashid Firangi Mahali said there was general consensus among all Muslim organisations and welcomed the plan, saying Islamic banking had been quite successful in several countries.

“Since it is not interest-based and the customer is also ready to bear losses, there is nothing wrong with it,” he said, adding there was no crisis even when during an economic slowdown.

According to consultants Ernst and Young, global Islamic banking assets, tapped by major international bankers from HSBC to Standard Chartered Bank, were estimated at $1.8 trillion (about Rs 112 lakh crore) last year.

“Islamic banks generally escaped the worst effects of the 2008 financial crisis because they were not exposed to subprime and toxic assets,” World Bank managing director Mahmoud Mohieldin said in a research note last month.

The Bombay Stock Exchange launched India’s first Shariah index — S&P BSE 500 Shariah — in May 2013. Over the past year, it has given a return of a robust 46%, greater than the 30-share BSE Sensex’s annualised return of 41%.

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