Bombay Stock Exchange Launches Shariah Index

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May 9 – Last week, the Bombay Stock Exchange (BSE) became India’s first stock exchange to launch an Islamic-focused Index, calling it the S&P BSE 500 Shariah Index. The Shariah Index will be the first index launched since S&P Dow Jones and BSE announced their strategic partnership in February, joining a long list of well-known indices around the globe.

Its main differentiating feature will be its compliance with Islamic canonical law in choosing investments. This will allow for further inclusion of India’s estimated 170+ million Muslims in India’s markets, providing them with certainty in not violating religious law with their investments.

The index will specifically exclude firms dealing with pork or tobacco products, newspapers and other media firms, any businesses dealing in alcohol or pornography, and other firms dealing in products incompatible with Islamic standards. Most notably, since Islamic law forbids gambling, derivatives, futures, and other similar financial products will not be eligible for this index.

“For us, the index is part of a bigger exercise of inclusion and fairness,” said BSE Managing Director Ashishkumar Chauhan.

Having spent part of his career in Ahmedabad, an Indian metropolis with a significant Muslim population, Chauhan is well aware of the demand and potential of such an index. More importantly, studies have recently shown that Muslim participation in India’s financial system is lacking when set next to their participation in the overall economy.

The launch of the Shariah Index may encourage more of India’s vibrant Muslim population to invest. Additionally, the creation of an Islamic-focused index will also allow India to attract investment from overseas funds that choose to invest only in Shariah-compliant firms and indices.

The BSE Shariah Index is the latest in a long line of Shariah-compliant indices elsewhere in the world. S&P Dow Jones has opened a number of other indices like the BSE Shariah Index in other countries, including the S&P Global BMI Shariah, which consists of over 11,000 companies. With the second-largest Muslim population in the world, India is a fitting country for the exchange’s next index.

In India, Muslims comprise nearly 15 percent of the population and are part of a very strong consumer base, to the extent that the demand for Shariah-compliant products and services has already been met by many local and international companies. Fast-food titan McDonald’s, for instance, serves neither beef nor pork in any of its Indian outlets, in order to avoid offending either Hindus or Muslims.

A Shariah-compliant index is a natural step along a road that has already seen notable progress in India. The creation of a Shariah Index will provide broader financial options to India’s growing Muslim population, and may promote their financial inclusion in Indian markets as well.

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