Islamic Index Encourages Muslims to Invest in Bombay Stock Exchange

An alternative outlet for guilt-free investing with an eye toward Shariah law.

ByABC News
December 30, 2010, 10:46 AM

Dec. 30, 2010— -- The Bombay Stock Exchange has launched a new stock index of companies that are compliant with the Islamic legal code, encouraging Muslims to invest in India's fast-growing stock market.

Islamic law imposes restrictions on investing in companies that charge interest and those that sell products such as alcohol, weapons or tobacco.

The index, called BSE TASIS Shariah 50, is composed of the 50 largest and most liquid stocks that adhere to Islamic law. The companies were chosen by the Taqwaa Advisory and Shariah Investment Solutions (TASIS), a Mumbai-based Islamic finance firm whose board members include legal experts and Islamic scholars.

Stocks will be reviewed monthly for Shariah compliance, and non-compliant stocks will be removed. Additional companies will be added on a quarterly basis.

"It will create a market for Indian Muslims," Shariq Nisar, the director of research and operations at TASIS, said in a statement. "We can provide opportunity to domestic investors so that they can invest their money without falling foul of their ethical and religious requirement.

"A lot of Muslim investors who could have invested their money in stock market and benefited from it, they were not having this opportunity earlier."

Islamic indexes already exist in other countries in the Middle East and Asia, including Pakistan and Indonesia, which have the two largest Muslim populations in the world. (India is third, with more than 150 million Muslims, or 13 percent of its predominantly Hindu population).

The other countries' financial systems are not necessarily sophisticated enough to support large stock indexes.

India's development in the past decade, however, allows it to support such a large index, which started Monday. "The BSE has the largest number of listed Shariah-compliant stocks in the world," Nisar said. "All Muslim countries of the Middle East and Pakistan put together do not have as many listed Shariah-compliant stocks as are available on the BSE."

The index is expected to encourage members of India's newly emerging Muslim middle class to invest, instead of saving money because of their conservative values.