Islamic financial institutions have emerged due to the non-Shariah compliant nature of conventional financial institutions that entails interest, uncertainty, gambling and activities prohibited from the Islamic perspective. One of the most essential aims of Islamic financial institutions is to provide fairness to their clients. The Islamic finance industry is growing at a rapid rate. Its products and services are offered globally. The ultimate vision of the emergence of the Islamic finance industry is to avoid the prohibited practices of conventional financial institutions.
The mission of these institutions is to ensure that their business activities are free from unfair and unjust elements for the betterment of all involved parties regardless of religion. However, this sector is at an incipient stage in India. The regulators, politicians, corporate sector and media should stand up now and bring awareness to the Indian masses about Islamic finance for the betterment of the country and its economy, otherwise financial inclusion will be just a dream.
|Table 1: Monthly average value of Taurus’s assets under management (January 2020 to September 2020)|
|Month||(Monthly average AuM) (crore)||Month-end AuM (crore)|
|Source: Taurus monthly factsheets|
Review of 2020
Tata Asset Management (TAM) has been providing investment management services to the Tata Mutual Fund across the entire risk–return continuum. These include ethical equity funds, balanced funds and debt and money market-oriented funds. In April 2020, TAM took a significant step up the ladder and formally joined the Dubai International Financial Centre, the leading international financial hub in the Middle East, Africa and South Asia region. The group derives its solidity and energy from its intellectual capital and its strong risk management framework based on in-built controls and balances.
The TAM theory is concentrated on seeking consistent, long-term results. TAM aims at overall excellence, within the framework of transparent and rigorous risk controls. TAM’s success is secured in a value-based method to the business that aims to ensure the financial future of its investors and deliver to them excellent quality of life, through performance, assistance and assurance.
In May 2020, Dr Tausif Malik, an American–Indian social entrepreneur took the ineluctable initiative and launched the world’s first-ever Halal Angel Investors Network to promote innovation, Halal entrepreneurship and start-ups to tap into the US$5 trillion Halal consumer market which is expected to grow to US$9.71 trillion by 2025.
The Halal Angel Investors Network works in the same format as the traditional Angels Network, where it brings angel investors and start-ups together on one platform. But what makes this initiative unique is all projects undertaken will be Shariah compliant. For this purpose, the Halal Angels Network has tied up with Halal Board India & Halal Laboratories that will evaluate the Shariah compliance of projects and tap into the fast-growing Halal consumer market.
The 2019–20 financial year will go down in history as the year that saw the COVID-19 pandemic which led to complete global chaos. India and other countries across the globe imposed lockdowns from March 2020 onwards due to the large-scale spread of the pandemic. The latter half of the financial year continued to be as dramatic with the bushfires of Australia, the US–Iran near-war situation, the UK leaving the EU, the Beirut explosion, earthquakes, cyclones and such. Subsequently, the Indian economy struggled with a slowdown in several sectors notably automobile. However, despite the slowdown, India’s stock markets continued to retain hope by consistently remaining at elevated levels.
According to the Taurus monthly factsheets over a period of nine months (January 2020 to September 2020), the trend shows that the monthly average value of assets under management (AuM) increased over the nine months except in March, April and May. Although the AuM increased over the nine months, the scheme has not declared any dividend for the last nine months.
According to the fund manager: “The investment strategy is stock-specific through a bottom-up approach. Considering the volatility in the market, we have chosen to remain well-diversified across sectors. The portfolio strategy is to protect the capital in volatile markets. The portfolio has high exposure towards IT, cement and infrastructure sectors.”
Taqwa Credit Co-operative Society, also known as Taqwa Banking, emerged in 2015 as an effective tool for Islamic banking and finance with selected investment portfolios operating in the Karnataka state of India. The model is the first of its kind in India, and provides Riba-free financial services by offering reasonable returns on customer deposits and investments through various financing schemes covered by risk management.
According to its chief executive, no dividend was declared for the current financial year. This was due to the conservation of profits and continued investment in the business for the current financial year to optimize losses incurred by the company. The company recorded a loss of INR1.26 million (US$16,978.8) in the financial year ended the 31st March 2019. During the year, net revenue from operations of the company decreased by 28% from INR140 million (US$1.89 million) to INR100 million (US$1.35 million) due to deposits withdrawn which people had invested in many Ponzi companies.
Preview of 2021
A country is dependent on the human capital of extraordinary superiority to become a developed nation and maintain that status. This makes human capital the most valuable asset in an organization, a few notches more than other capital or equipment. It is for sure that human capital will increase in India. Many Indians will be completing their studies in Islamic finance from different universities across the globe. Among the biggest challenges to introduce Islamic finance is human capital in Islamic finance. It is hoped that in 2021, this obstacle will be reduced.
Furthermore, Shariah mutual funds are improving slowly. Still, there are many things to look into to improve Shariah mutual funds. Firstly, it is essential to increase the number of existing Shariah mutual funds. Secondly, financial education is needed to increase the people’s awareness of the needs and benefits of Shariah mutual funds. And lastly, effectively marketing Shariah mutual fund schemes through continuous advertisements across different social media platforms will play a pivotal role in the success of Shariah mutual funds.
Another sector progressively booming specifically in the southern region of India is Islamic microfinance. Considered as a competent tool to encourage entrepreneurship, it helps the lower- to middle-class families engage in setting up SMEs. Islamic microfinance has an upper hand over its counterpart in maximizing its social services by tapping into the religious institutions of charity to fulfill the basic needs of the poor and acting as a safety net.
Islam gives utmost importance to helping the poor, the orphans and the destitute and therefore divides charity into two types: Zakat which is compulsory and Sadaqah, Waqf and benevolent loans which are voluntary. If Islamic microfinance is well established and regulated in India, the sector can become a powerful tool to draw financial resources from nonprofit-based and charitable organizations in the Middle East and other countries around the globe.
To allow the Islamic microfinance system to contribute significantly and to revive the MSMEs, it is necessary to conduct in-depth research on the current status of the Muslim minority and the poor in India.
No individual can deny that the Indian economy was already suffering from headwinds way before the pandemic arrived. India’s GDP was on a descending trajectory even before the COVID-19 pandemic hit the country, mainly due to the demonetization exercise and the botched-up implementation of the goods and services tax that paralyzed the cash-dominated informal sector and small businesses. Besides, the pressure in India’s financial sector, particularly among banks and non-bank financial companies, has also been rising before the COVID-19 pandemic.
Coupled with a philanthropic disaster and muted management response, the COVID-19 pandemic has mercilessly worsened existing vulnerabilities in the Indian economy. To cope, it is extremely important to introduce Islamic financial institutions in India. To some extent, these institutions will balance the Indian economy because many Muslims are not part of the conventional system due to prohibited elements. It is to be believed that if the government introduces Islamic finance, the majority of Muslims will participate in it. There is a high possibility of getting it approved if the bankers and corporate sector collectively request or apply for it.