On September 11, 2001, the world changed for almost everybody in the planet. The case of Islamic investors was no different.
Changing political situation in America and European countries after the terror attack on World Trade Center and falling GDPs of Europe and North America have forced rich Islamic investors from the Gulf countries to look for investment opportunities in South East Asian countries, including India.
According to sources in the industry, Islamic investments close to $750 million have already been made in the capital market and infrastructure sector in the past few months. In fact, India has seen tremendous increase in the investment inflows from Islamic nations in the last few years. However, it is difficult to find out the exact amount of investment flowing into India from the Islamic world so far because most of it is in unorganised sectors like real estate.
But Indian industry sources engaged in promoting Islamic finance and investment expect an investment of at least one billion US dollars in Shariah-compliant Indian companies in the next one year. Shariah is the Islamic legal framework covering all aspects of lives of Muslims - private and public - including trade, commerce and business.
Keeping in view the immense opportunities of Islamic investment in India in future, Kotak Mahindra Mutual Fund has launched an Islamic fund worth $300 million to enable Islamic investors to invest in Indian stocks in a shariah-compliant way. A few months ago, a Bangalore-based venture capital firm named '2iCapital' placed 250 million in an Islamic fund.
Kuwait-based Khaleej Finance and Investment also recently invested $250 million in shariah-compliant venture in India and Beary's Investments, a Middle-East investment group, made an investment of over $50 million in real estate in Bangalore just two months ago. This suggests that India is emerging as an investment destination for global Islamic investors.
According to Dr Shariq Nisar, an expert on Islamic investment and finance associated with Mumbai-based Idafa Investment Pvt Ltd, a stock brokerage firm adhering to Islamic economic norms, there is a clear switch of Islamic investors looking for alternate destinations owing to fear of freezing of their accounts in Europe and North America due to political and other developments in the last few years.
As many as 180 Islamic Investment Funds, says Dr Nisar, have been floated since 9/11 and all of them are looking for investment out of Europe and North America. Another reason, says Nisar, for Islamic investors moving out of Europe and North America could be the low rate of returns in those countries where the GPD has registered a downfall in recent years.
"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," says Dr Nisar.
China, riding high on its manufacturing ability, has recorded tremendous economic growth in the recent past. "But as far as foreign investments are concerned, it is still looked upon with suspicion, mainly for its political set-up and its economic model," points out Dr Nisar.
"But India, the world's largest democracy, offers some very clear advantages. It is not only one of the fastest growing economies in the world, but with a population of 1.3 billion, India represents economic opportunities on a massive scale," says Dr Nisar.
"India's legal framework, which protects foreign investors, is also the best in the region. There is also an abundance of managerial and technical skills, with international expertise and that is where India enjoys an edge over other Asian countries to attract foreign investors," Dr Nisar says.
With such a sound economic base and with hundreds of companies complying to economic laws of Shariah, Dr Nisar says that India offers a huge 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, pornography, alcohol, fashion, gambling, vulgar entertainment and conventional finances like banks and non-banking financial institutions.
According to a study conducted by Dr Nisar, a number of Shariah-compliant stocks in India are much higher than in Muslim countries put together, thus providing immense scope of parking money by Islamic investors. He claims that 61 per cent Indian companies are Shariah-compliant against 57 per cent in Malaysia, 51 per cent in Pakistan and a mere 6 per cent in Bahrain. Giving details, he says that 335 of 1,000 listed firms at National Stock Exchange and 237 out of 500 listed at Bombay Stock Exchange are Shariah-compliant.
"Surprisingly, the growth in market capitalisation of Shariah-compliant stocks was also found to be better than the rate of growth achieved by non-Shariah-compliant stocks," claims Dr Nisar, saying that "Islamic
finance is fast becoming a great success story of modern times".
According to Uvesh Sareshwala, director of Parsoli Investment Corporation, an Ahmedabad-based stock brokerage firm that adheres to Islamic investment norms and also created India's first Islamic equity stock index, the Parsoli Islamic Equity Index, "Export earnings of Gulf countries have gone up and all of it can't be invested locally due to little economic activity in Arab countries.
Even though Islamic investors turned to Islamic countries like Malaysia, Pakistan and Indonesia, their economies provide limited opportunities and too inadequate to absorb the huge investment potential of the Arab Islamic countries. So, the Islamic investors are now coming forward to invest in India, as it is the best option with a large number of companies qualifying Shariah investment norms."
According to the Institute of International Finance, a global bankers' group based at Washington DC, the total export earnings of Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) during 2002-06 was more than $1.5 trillion. While $1 trillion went towards imports, a surplus of $542 billion entered the global capital markets.
However, it is not clear how much of it exactly was invested in India.
Sareshwala feels there is very low level of awareness among global Islamic investors about Indian capital market. "To mobilise the Islamic investors, we need to launch a vigorous publicity drive popularising among the Islamic investors that Indian economy is growing fast, a majority of Indian stocks are Shariah-compliant, Indian capital market is well regulated and there is no chance of losing money, and stock markets in India are at par with the best in the world," points out Sareshwala.
To that end, Parsoli has recently prepared an 8-minute film showcasing India's immense economic growth and its potential for investment. "Among other things, the film contains India's rising gross domestic product, capital market regulation rules, number of Shariah-compliant companies,'' says Sareshwala. Company's managing director Zafar Sareshwala toured European countries showing the film to Arab and Islamic investors with a view to mobilise them to invest their money in Indian ventures.
He says that the scope of investment in real estate is limited but there is no limit to investment in the stock markets.
He said there were certain misgivings among certain quarters in India about the launching of Islamic fund as they felt it would go against the secular character of the country. "But to motivate Muslims to invest, we have to launch Islamic funds, conforming to Shariah norms," said Sareshwala.
With Islamic finance industry at its infancy in India, firms and institutions in Islamic investment are facing shortage of qualified Islamic religious scholars as also bankers. "To meet the needs of Islamic finance industry, three institutes offering education in Islamic finance and management have been set up recently in Kerala (Calicut), Hyderabad (Andhra Pradesh) and Bhubaneswar (Orissa), offering postgraduate diploma in Islamic banking and finance," says Dr Nisar.
"Even Indian Muslim investors have shown great interest in investing in Shariah-compliant stocks," said Sareshwala. While the local clientele of Parsoli is increasing at a rate of 10 to 20 per cent per month, Sareshwala hopes to achieve the strength of at least 20,000 in the next six months. Mumbai-based Idafa also claims a rise in the number of its clientele regularly. "There are more than 800 clientele with Idafa at present," said Idafa's Ubaid Chiprah.
An Ahmedabad-based investor Sufiyanbhai Ibrahimbhai Kothwala said : "I was attracted to investing in stocks after I came to know that most of the Indian companies are Sharia-compliant. Earlier, I never invested in stocks. I have now parked my money in several Shariah-complaint companies and am also motivating my business friends to put their surplus in Shariah complaint stocks rather than stashing them at home or in saving bank accounts."
He says: "Shariah-compliant stocks are 'halal' (permissible) under Islamic finance laws while non-Shariah compliant companies are 'haram' (prohibited)."
Another investor Usmanghani Lakhani, hailing from a business family, says a part of the family's income was being invested in Shariah-compliant stocks because while the income from it is 'halal', it also multiplies the money which would otherwise have just depreciated by keeping at home.
"With increasing awareness about capital market among local Muslims owing to educational growth among them, demand for Islamic investments has also gone up," says Sareshwala, adding that is why his company had opened its franchisee in Mumbai, Aurangabad, Nanded, Bangalore, Rajkot, Srinagar and at four places in Ahmedabad.
"In the next six months, we plan to open at least 35 franchisee centres at different places in the country, including one in Delhi and another at Calicut in Kerala," said Sareshwala.