India Shariah Market Tested With Property Funds

Taqwaa Advisory is setting up a Rs. 250 crore real estate fund to give Indian muslims a Shariah investment option Liau Y-Sing    Yudith Ho A file photo of BSE. India has two Shariah equity funds and BSE introduced a new Islamic share index on 2 May. Photo: Hemant Mishra/Mint Taqwaa Advisory and Shariah Investment Solutions Pvt. Ltd, a Mumbai-based consultancy, is setting up the Rs. 250 crore fund on behalf of a company backed by the Kerala government, director Shariq Nisar said in an interview on Wednesday. Secura Investment Management (India) Pvt. Ltd manages the country’s only other such real estate vehicle. India has two Shariah equity funds and BSE Ltd, the stock exchange operator, introduced a new Islamic share index on 2 May. “Islamic finance is in a nascent stage in India and definitely any new product will create more awareness and opportunity,” Taqwaa’s Nisar said. “There’s a lack of awareness and interest, which will take some time to be removed.” In 2008, a 13-member panel of experts led by Raghuram Rajan , a former chief economist at the International Monetary Fund and now the top adviser in India’s finance ministry, recommended that the country allow banking that complies with Islam’s ban on interest. The government did not take any action, and central bank governor D. Subbarao said this month that Shariah-compliant banking is inconsistent with the nation’s laws. Political barrier India’s 10-year sovereign bonds yield 7.15%, well ahead of 5.97% in Indonesia, the next highest in the region, data compiled by Bloomberg show. “The challenge is that every time India tries to offer Islamic banking, the tendency is to politicize this product,” Raj Mohamad, managing director at consulting company Five Pillars Pte, said in an interview from Singapore on Wednesday. “India should look at non-traditional Islamic finance markets and see how they have done it.” Stock funds Internationally, an increasing amount of Shariah-compliant financial assets has buoyed demand for sukuk, with worldwide sales reaching a record $46.5 billion last year. Issuance has risen 7% so far in 2013 to $18 billion, data compiled by Bloomberg show. The average yield on Islamic debt rose 10 basis points, or 0.1 percentage point, to 3.38% on Wednesday, the HSBC/Nasdaq Dubai US Dollar Sukuk Index shows. Borrowing costs have climbed 57 basis points this year, after reaching a record low of 2.67% in January. The yield premium over the London interbank offered rate, or Libor, widened five basis points to 181. Some 13% of India’s 1.2 billion people are Muslim, according to the CIA World Factbook, the third-biggest population behind Indonesia and Pakistan. Those two countries have 209.6 trillion rupiah and 837 billion Pakistani rupees of Islamic banking assets, the latest central bank data show. In Malaysia, a global pioneer in Shariah-compliant finance, holdings total 399 billion ringgit. Bloomberg Taylor Scott International