The BSE Tasis Shariah 50 index formed using the guidelines of the Islamic investment code and upon the advice of a Shariah advisory board allows investors to trade in stock markets without violating the Islamic code on investment and finance.

According to a senior official at Taqwaa Advisory and Shariah Investment Solutions (TASIS), “Bombay Stock Exchange has the largest number of listed Shariah compliant stocks in the world. All Muslim countries of West Asia and Pakistan put together do not have as many listed Shariah compliant stocks as are available on BSE.”

TASIS is an organisation providing Shariah advisory and investment solutions in India, while operating within the Indian legal framework.

BSE and TASIS launched the BSE TASIS Shariah 50 Index in 2010. The main aim of introducing the Shariah index was to attract the Muslim population to invest in the stock market. The index consists of the 50 largest and most liquid Shariah compliant stocks within the BSE 500. It is the sixth largest index at BSE in terms of market capitalisation and turnover.

Even though stock markets in India have seen a new phase of growth in recent years, a large section of the Indian population restrained itself from investing in the stock markets. This is mainly because the Muslim population (Approx 180 million) abstained from investing due to their religious beliefs of not indulging in any investment activity that is prohibited under the Shariah Law. Guidelines for BSE TASIS Shariah 50 index have been developed by TASIS. Primarily there are two steps involved in Shariah screening process. First is business screening and the second financial screening.

Business Screening

All companies engaged in non-compliant business to any extent are screened out; such as companies into alcohol, gambling, tobacco, financial services including insurance and stock broking, vulgar entertainment, hotels, resorts and foods and any other business which is harmful and injurious to society.

Financial screening

All companies whose business is acceptable under Shariah but they occasionally indulge in non-Shariah means of raising finance or earnings incomes are further screened on the following parameters:

Total interest bearing debt of the company should be less than 25 per cent of its total asset.

Interest income from all sources (including dividend) should be less than 3 per cent of the total income of the company cash plus debts should be less than 90 per cent of total assets.

Purging of impure income

This is another important element of the entire Shariah screening process. Any income that is prohibited from Shariah point of view and has accrued to company account must be purged by the respective investor to remain Shariah compliant.

Ideally, the volumes in the stocks that are included in Shariah index should have increased since that is the sole idea of launching a Shariah index. But in the last two years market movements have not been very positive, when BSE TASIS Shariah 50 was launched (December 27, 2010), BSE 500 was at 7800 approx and currently it is around 7579.

Since the markets are not moving consistently and positively for the last couple of years, it is difficult to say anything about the impact of launching this index on the investments in the stocks which are included in BSE TASIS Shariah 50.

We hope that the market would recover and the volumes in the scrips included in Shariah index would also increase significantly, which is one of the purposes for launching such index. A large section of people who want to make their investment keeping in line with their religion would get an fair opportunity to do so.

(Puja Aggarwal Gulati is Assistant Professor, IMT Ghaziabad and Barnali Chaklader is Associate Professor, IMI Delhi. The views are personal)

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