By: Md Ayub Khan, Senior Research Analyst, TASIS

In recent years India has emerged among the prominent economies of the world.  At present it is the 10th largest economy in terms of size and in terms of purchasing power parity (PPP). India has become the 3rd largest economy after the USA and China. A BRIC Report has projected India to become the world’s largest economy by first half of this century. Since launch of full-fledged economic reforms in early 1990s there has been enormous change in Indian financial market and it has now become more transparent and investor friendly. The regulators of financial market Reserve Bank of India (RBI), Security Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA) have worked in tandem to bring discipline and transparency in working of our financial institutions and products. Legal system of the country has withstood its ground in checking any aberration. Financial market has deepened and foreign investors have shown confidence in Indian market.

However, one area where India is still considered laggard – and not without any reason- is the area of Islamic banking and finance. Many believe India to be the birth place of Islamic economics (mother of present day Islamic banking and finance movements across the globe today) and considering the huge number of Muslim population India should have been one of the leading destination of Islamic finance. But owing to rigid banking lawns in the country Islamic banking and finance has not really picked up pace. Among the three major regulators of India’s financial sector only SEBI (the capital market regulator) has shown commitment and resilience to allow shariah compliant products in the country. There are some other positive developments also which are covered in this brief report.

There are hardly any doubts that future of Islamic finance in India is highly promising mainly owing to the direction in which Indian economy is headed and the growing number of Muslim youngsters who have been asserting in their preference to shariah compliance. It has been observed that in the past few years India is gradually opening up for Shariah compliant products. As a result today we see many Shariah compliant products in the Indian market. Though these products are not sufficient but still we needed to start from somewhere.

In the following paragraphs we provide brief description of Shariah compliant products in the country.


Mutual Fund is capital market product and provides good option to the retail investors (Shariah compliant) to deploy their funds in an interest free manner. Under Shariah compliant Mutual Fund category, the fund is invested in the Shariah compliant equities. This provides an alternative to retails investors who do not wish to save their money with conventional bank. At present there are two Shariah compliant investment schemes launched by mainstream capital market players. Both are hundred per cent equity based investment scheme.

  1. 1.        TATA Ethical Fund

This is India’s first Shariah compliant mutual fund scheme launched in 1996. The scheme is open ended equity scheme with mandate to invest only in Shariah compliant stocks.  The scheme has two variants (growth and dividend) and presently size of the fund is Rs 110 crore which has grown with the CAGR of 9.54% over the period of five years (2008 to 2012).

  1. 2.        Taurus Ethical Fund:

This is India’s second Shariah compliant mutual fund scheme launched in April 2009. The scheme has three variants namely; Growth, Bonus and Dividend. This too is an open ended equity oriented scheme which invests only in Shariah compliant stocks. The present size of the asset under management is Rs 25 crore.  The AUM from 2009 to 2012 has grown with a CAGR of 20.63%. The scheme offered return of approximately 99% in the year 2009 which declined to approximately 12% in the year in 2012.


Islamic insurance market is not formally open in India as yet. According to IRDA regulation an insurance scheme must offer insurance cover (shariah non-compliant at the moment) and also offer guaranteed return. This is a recent change in regulation after spat between the two regulators (SEBI and IRDA) over regulatory authority over certain types of products. The new changes were brought to distinguish insurance activities from purely an investment activity. The new IRDA regulation to offer guaranteed returns to the insured makes it compulsory to invest (at least a portion) in fixed income securities.

  1. 1.        Pure stock Pension Plan (PSPEN)

This was India’s first Shariah compliant pension scheme launched by an insurance player Bajaj Allianz in the year 2009. The scheme has been launched a year before new IRDA regulation came into force.. Since the new regulation was not implemented retrospectively the scheme continued after the regulation for the existing investors. However the scheme cannot invite new customers without compromising on Shariah compliance (since premium collected from new customer was required to be invested in debt securities). Though Bajaj Allianz under PSPEN scheme could not add new customers, but have managed the funds of existing customers very efficiently. The AUM of PSPEN in 2009 was Rs 5.69 crore and in the year 2010 it reached to Rs 20.73 crore an increase of 264%. After the new IRDA regulation the fund could only managed to grow to Rs 22.62 crore in 2011. Since the launch in 2009 and over the period of four years AUM has grown with the CAGR of 51.33%.

2.        GIC Re-Takaful

General Insurance Corporation of India (GIC) is an Indian government owned Reinsurance Company. GIC to capture the Takaful market in the Middles Eastern countries introduced Retakaful scheme. The scheme was launched in the year 2009 and since then it has achieved decent growth. GIC’s Retakaful scheme is now extended to South East Asian countries also (Exhibit 7). The contribution collected from UAE forms the major portion of the total premium collected. The average percentage of contribution collected from UAE to total contribution is 87.8%. The data shows that GIC’s market base is strongly growing in Malaysia, the contribution collected from Malaysia in 2011 was Rs 0.11 crore which increased to Rs 6.5 crore in 2012 which is 58 times from the previous year. The Net Takaful Fund (after meeting claims) increased 5.4 times from 2010 to 2011. In the year 2011, the claims were high which led to reduction in Net Takaful Fund.


National Spot Exchange Ltd. is commodity exchange for spot trading of bullions and agricultural commodities. In 2010 they came up with innovative product called E-series. The first products launched under the E-series categories were E-Gold, E-Silver and E-Copper. Later on E-Zinc, E-Lead, E-Nickel and lately E-platinum joined the wagon. These E-series products are certified by Shariah Advisory institution TASIS. These E-series products enable even small investors to invest and keep their holding in demat form. The equivalent amount of each E-series product’s unit (traded in market) is stored in the vault of NSEL in physical form. The vault is regularly inspected by TASIS to assure Shariah compliance. Investors are also provided option to take physical delivery of the E-series products.

If we analyse the performance of the bullion (E-Gold, E-silver), they have proved healthy returns to their investors over a period of time. E-gold over the period of three years has given an average return of 17.8% per annum, whereas E-silver has given an average return of 20.05% per annum for the same period. 







E-Gold 8.30 30.36 14.76 65.62
E-Silver 38.34 11.30 10.51 72.06
E-Platinum 5.50 5.50
E-Copper 18.17 -9.33 5.37 13.22
E-Zinc -9.48 8.89 -1.43
E-Nickel -14.23 -14.23
E-Lead -11.62 14.33 1.04

Exhibit: 10, Source: NSEL


  1. 1.        Secura India Real Estate Fund Domestic Scheme 1

Under the Shariah compliant venture capital fund, Secura India Real Estate Fund (Domestic Scheme 1) is the first shariah compliant real estate scheme in India which is approved by SEBI as a venture capital fund. The funds raised have been invested in potential real estate project and now the scheme has matured with about 18% return to its investors. Immediately upon successful completion of Scheme 1 Secura has announced the launch of Scheme 2.

  1. 2.         Cheraman Premium Fund 1

This is India’s second Shariah compliant venture capital fund launched by Kerala government promoted Al-Barakah Financial Services Ltd (a subsidiary company of Kerala State Industrial Development Corporation, KSIDC). The scheme is initially targeting 250 crores of Fund with green shoe option of another 50 crores. Another unique feature of this Scheme is that it will develop idle waqf properties in the state on the basis of Musharakah 

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One comment

  1. kindly let me know the pension scheme as per shariah.

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