NEW DELHI (AP) — 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 capital markets regulator, recently allowed the government-owned State Bank of India and three mutual funds to launch Shariah funds.
An official said Wednesday that the bank is 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 Shariah 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 the Bombay Stock Exchange Shariah filter."
India's stock exchanges have between 600 and 700 companies that are Shariah-compliant.
The new fund has not been opposed by 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 launched India's first Shariah index, which tracks the performance of Shariah-compliant companies. These companies have given a return of 46 percent, performing better than the 30-share BSE Sensex index which gave annualized return of 41 percent.
India is only the second country outside the Islamic world where a state-owned bank is offering a Shariah-compliant fund. The U.K. issued sovereign Islamic bonds in June.
Global Islamic banking assets were estimated at around $1.8 trillion in 2013.