FAITH FINANCE

Advocate

Even as Shariah-compliant Islamic banking is still to open its account in India, thanks to RBI and the finance ministry's opposition, it is already a $300-billion market globally. Islamic finance—the whole gamut of banking, equity investments, mutual funds and insurance—is a $1.2 trillion market, growing at over 20-30% year-on-year. The launch of BSE's Shariah-compliant index, after one by NSE earlier, is therefore a welcome first step in making millions of financially-excluded Muslims part of the India growth story. While the share of the 175 million Muslim community in bank accounts is in line with the population share (12.2% versus 13.4%), the Muslims' share of public sector bank loans is a meagre 4.6%. Even in 44 minority-concentration districts studied by the Sachar Committee, Muslims' share of bank accounts moves up to 21%, but share of credit inches to just 7.9%. The community's share of all deposit money with scheduled commercial banks is half its population share, at just 7.4%. A large part of the community is self-employed in largely unorganised sectors, and so remains outside the ambit of formal finance. So while public sector banks need to open more branches in under-banked Muslim-dominated areas, we need to channelise the community's savings to the market, in a way that is complaint with its faith. India has just a handful of Shariah-compliant mutual funds—Benchmark, Tata Select Equity Fund and Tarus Ethical Fund. In markets like Malaysia, even the UK, where a substantial part of investors in such funds are non-Muslims, is heartening to see that fund houses can hawk Islamic investments to even non-Muslims as a product that are more resilient to interest-rate movements because Shariah-led investing debars business with income accruing from interest, and industries like alcohol, tobacco, gambling et al. And even though India may be witnessing copious foreign fund flows at the moment, it will help to diversify its US and Europe-centric nature and a well-developed Islamic finance market may help attract billions of petro-dollars flowing in from rich Arab countries. It'll help that the development of new faith-based investment products will also augur well for a community which has traditionally found it difficult to keep its financial head over water.

 
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