NEW DELHI – India’s largest state-owned bank will launch an Islamic equity fund next month aimed mainly at attracting investments from the country’s 170 million Muslims.The Securities and Exchange Board of India, the country’s banking regulator, recently allowed the government-owned State Bank of India and three mutual funds to launch Sharia funds.
An official said Wednesday that the bank was expecting to attract an initial 1 billion rupees ($16.4 million) to the fund which will launch on Dec. 1.
A large section of India’s Muslim population remains outside the banking system, partly because Islamic law known as Sharia prohibits interest. Shares of companies linked to alcohol, tobacco, gambling and casinos and financial institutions that earn interest would be excluded from the fund.
“It will be a diversified equity fund, including large cap, mid-cap and small cap funds,” said Dinesh Khara, managing director and CEO of the bank’s SBI Mutual Fund. “We will identify stocks that meet all aspects of Sharia banking laws,” Khara said.
India’s stock exchanges have between 600 and 700 companies that are Sharia-compliant.
The new fund has the approval of the All India Muslim Personal Law Board, an authority that oversees the observance of Muslim civil laws in India.
In May last year, the Bombay Stock Exchange had launched India’s first Sharia index, which tracks the performance of Sharia-compliant companies. These companies have given a return of 46 per cent, performing better than the 30-share BSE Sensex index which gave annualized return of 41 per cent.
India is only the second country outside the Islamic world where a state-owned bank is offering a Sharia-compliant fund. The U.K. issued sovereign Islamic bonds in June.
Global Islamic banking assets were estimated at around $1.8 trillion in 2013.