Pic used for representational purposes ( Google)

In these ‘Halal’ offers,  even more attractive than the Halal factor was the ridiculously-high returns they promised to their investors. This, coupled with religious scholars who were too happy to promote such companies, meant that Muslim investors came in hundreds. Such smart marketing embedded with lies and deceit meant that these companies were easily able to fool people.

In this five-part series, TwoCircles.net will look at how companies like Heera Gold, now at the centre of a confirmed Ponzi scheme, used a combination of religious symbolism, Ulemas, fake propaganda and political tools to attract investors in Hyderabad.  

In the last of the five-part series, certified Islamic Finance expert Syed Mohammed Abud Asif explains why it is easy for Muslims to fall for such fraudulent companies and how the Indian government passively encourages such companies by not providing adequate Shariah-compliant banking avenues for the country’s Muslims. He also lists the basic mandatory checks that Muslim investors must make before investing in any company that claims to be Shariah compliant.

I have watched in part amazement and part despair as over the past year, thousands of Muslims have lost their hard-earned money at the hands of fraudulent companies who promise ridiculously high returns in the name of ‘Halal’ investments. I sometimes wonder why people would willingly walk into such traps without double-checking on the companies, their ‘Halal’ label, their books and accounts etc. But then I also realise that the answer is right in front of me.

Take, for example, a student who gets recruited to, say, a software company through campus recruitment and is able to save Rs 25,000 per month. A year later, he/she is able to save Rs 3 lakh per year. At different stages, all his classmates manage to get started with business or secure a decent job and continues to invest in some form or the other through mainstream banking routes. Meanwhile, the Muslim student remains confused because as a pious Muslim, he is not encouraged to invest and/or earn interest. When he/she thinks of an investment options, depositing with the conventional bank or insurance with insurers would not be an option.

It is also important to point out that over the past few years, a certain image of Shariah-related investment has developed which makes it sound like Shariah is anti-profit. However, this is an utter myth. A huge number of companies in India are Shariah-compliant and equity is the preferred mode of investment in Shariah. Hence, stocks should wide acceptance among Muslim investors as long as these stocks follow Shariah rules. In fact, even the National Stock Exchange and the Bombay Stock Exchange have a Shariah index which allows you to keep track of investments and companies that follow Shariah principles. The moot point, however, is this: how do you encourage a population that is economically and socially backward to invest in something as technical as equity investing? Plus, talks of stock investments ring premature when seen in context of the large-scale marginalisation of Muslims when it comes to having access to Shariah-compliant banking.

The only option left, then, is to either to start new business with the help of relative or friend or invest in real estate. And we know that starting a business is neither possible for everyone nor ideal. In the case of real estate, the investment amount is high and it is illiquid (cannot be converted into cash immediately).

Where then, does the money saved by Muslims go? Either it lies unattended in banks (which banks use to further the loan-anti Shariah business) or the money lies at home losing value). Who is to be blamed for this? Our savings are not used by ours and not used for our cause – either business, education, insurance or any needs. And despite several proposals, suggestions and ideas, the Reserve Bank of India and the Government are not in favor to allow full-fledged interest free banks and Takaful (insurance) companies to operate. And when even the ‘pro-Muslim’ Congress/UPA government did not allow it, do we honestly expect this NDA government to do so?

As a result, India finds itself in a rather unenviable position. The world’s third-largest Muslim population has less than 3% representation in financial system. This is even less than their representation in the Indian bureaucracy (4.7%) which itself is hardly a number to feel good about.
 

Pic: Google

No wonder then, that the cases of Bangalore and Hyderabad have become common these days. Companies which claim to do business in terms of Islamic rules of transactions have failed miserably in terms of performance and hence couldn’t sustain over period of time. They pool investment from small savers, business organization and retired individuals and promise an expected return which they can’t provide for. The Ponzi schemes played the same game, only adding to the image that interest-free financial institutions are not to be trusted. What we need is a an interest free financial model which is legally sound, financially robust, commercially viable, socially inclusive and shariah compliant.

It is true that many companies have tried to do that due to many internal and external factors. Mismanagement of funds, Excessive exposure to real estate and dubious financing practice are just a few of the problems. The massive rise and the subsequent fall of ponzi companies have once again necessitated the task of reformation of real alternative. In this context, companies like Rehbar, Mount Judi, Secura, Cheraman and TASIS (shariah indexes) are some of the ground breaking efforts furthering the alternative option.

In the cooperative societies level, there are institutions like Janaseva, Sanghamaum, Al khair, Bait un Nas, Sahulat Microfinance and Islamic Welfare Society which have earmarked trust in the public in terms of their performance and sustainability. On the stock exchange, there are Tata Ethical Fund and Taurus Ethical Fund which will appeal to the faith-based investor. There are no capital market instruments (stock and bonds, debentures, treasury bills, fixed deposits) available so far that claim to be Shariah-compliant.

Any business/finance or investment in accordance with Islamic Principles is called Shariah-compliant. There are research reports, books and many speeches available on the issue, but essentially there are four principal rules/criteria to check the Shariah permissibility:
The first and foremost is the business activity screening. Before investing, make sure that the company doesn’t violate any shariah prohibition. Accordingly, any involvement or investment in business of alcohol, pork, gambling, tobacco, and any interest-bearing transaction and all those that are prohibited under Islamic law are to be avoided.

Second, all the business undertaking or investment commitment needs to be thoroughly written down between the parties and the witnesses are sought to form a contract. While contracting, all terms and condition should be in clear guideline so that no disputes arise in the future. Any uncertainty as to the subject matter, price, delivery date etc shouldn’t jeopardize the true and actual performance of the contract.

Third, any partnership or co-venture between parties must have equal chances of profit or loss. Any investments that claims to make a fixed sum of money as returns are void under Islamic law. As with any investment, there is a chance of making losses the same applies to Shariah-compliant business/ investments as well.  Reporting losses doesn’t mean non compliance with Shariah.

Fourth, any investment that doesn’t disclose their business in terms of nature and accordingly their accounting fails the test of compliance. This demands the accounting and auditing of the whole business.

These are the prerequisite notes that can be controlled if external body legitimately have supervision both from commercial and legal (including Shariah) point of view. And this is where the fraudulent companies were able to get away. Insurance companies have the Insurance Regulatory and Development Authority of India (IRDAI); the stock market has the Securities and Exchange Board of India (SEBI); banks have the Reserve Bank of India (RBI) and Halal-compliant companies? There is Ministry of Corporate Affairs and the Registrar of Companies but that is for all registered companies. However, there is no single body or authority that investors who have lost money in these companies can approach. This was most visible when complaints against Heera Gold surfaced; it was between the Crime Branch, the Economic Offences Wing, the Enforcement Directorate and the Serious Frauds Office of India to decide. No wonder then, that the people who have lost money have little hope of ever getting their money back.

pic used for representational purposes only

The most fundamental yardsticks to consider is the shariah-compliant actual business performance, growth and development and its impact in the economy and its future course of business. It is becoming increasingly clear that in the absence of a regulatory authority and any offering of an alternative from the government regarding investments and banking, Muslims are caught between the devil and the deep sea. And these fraudulent companies are making millions by acting like saviours.

(The author is a Certified Islamic Finance professional based out of Bhatkal, Karnataka)

Courtesy: Two Circles

The post Why Muslims make the wrong investment choices and how to avoid it appeared first on SabrangIndia.

Picture from Facebook Zirva Business solutions

In these ‘Halal’ offers,  even more attractive than the Halal factor was the ridiculously-high returns they promised to their investors. This, coupled with religious scholars who were too happy to promote such companies, meant that Muslim investors came in hundreds. Such smart marketing embedded with lies and deceit meant that these companies were easily able to fool people.

In this five-part series, TwoCircles.net will look at how companies like Heera Gold, now at the centre of a confirmed Ponzi scheme, used a combination of religious symbolism, Ulemas, fake propaganda and political tools to attract investors in Hyderabad.  
So far, we have looked at how investors fell for schemes that were too good to be true in Bangalore and Hyderabad. However, in the fourth of the five-part series, Najiya O looks how Muslims of Kerala have largely escaped such fraudulent companies and why they are unlikely to suffer the same in the coming days too.

Even as Andhra Pradesh, Telangana and Karnataka Muslims reel from financial scams of thousands of crore over the past year, Muslims of one southern state seems to have avoided this trend. The Muslims of Kerala have managed to invest in Shariah-compliant companies even as other state’s Muslims have floundered.

To begin with, one reason for this is that unlike, say, Kerala and Telangana, there are just a few halal and/or shariah-compliant investment institutions in Kerala. This is also because Muslims who refrain from investing in mainstream institutions prefer to invest their money in various businesses or in land or gold. Kerala’s love for gold is well-known, but few are aware as to exactly how much Malayalis love the yellow metal: this 2014 ToI report shows that three Kerala gold companies have more gold than Sweden, Singapore and Australia. This Mint report from 2017 notes that “not only does rural Kerala top the rankings for spending on gold ornaments, its per capita spending is six times higher than the state that ranks number 2—Goa. Indeed, rural Kerala’s per capita spending on gold ornaments is far ahead of the total per capita spending of all the other six top states by gold consumption.” Add real estate and India’s general love for the land, and the fact that Shariah allows for investment in both gold and land and the truth is that even the Malayali Muslims have little appetite for other investments.

picture from google

However, for Muslims who do wish to invest in Shariah-compliant companies, there are a few options available. The Zirva Business Solutions based in Perinthalmanna in Malappuram was begun in 2011, with stock brokering, a course in Islamic finance and consultation services. Later they stopped the course and began to focus on stock brokering and selective consultation. The company is going well, with around 200 clients in share-trading and assets worth Rs 2.5 crore under our management, said Mr Shameem Sajjad, CEO of the company which has been registered as a limited liability partnership. “The returns that clients get depends on the stocks that they have selected, the time they entered the market, the general trend of the market etc. We cannot say that clients get this much returns uniformly. But on an average they get 10-15% returns per annum,” Sajjad said in a conversation with TwoCircles.net.

An investor at the Alternate Investments and Credits Limited (AICL) opined that companies which are Shariah-compliant cannot make big profits.  A well-established businessman who refused to be named said he invested Rs 1 lakh in AICL when it began back in 2001 in Kochi. “I invested in it in the name of his close relationship with those running it and support a novel venture”, he said while talking to TwoCircles.net. He added that he got only nominal returns annually as he had expected and that the company too never claimed to deliver big returns.

AICL registered as a Non-Banking Financial Company in 2002.  It was the first interest-free venture of this kind in the country.  The company has been working well since the beginning, providing loans for small business ventures etc but has suffered some setbacks after its NBFC license was cancelled by the Reserve Bank of India in 2012. The license was cancelled because it couldn’t present ‘its documents related to interest’, according to reports.  The company then questioned the RBI move in the Bombay High Court and is waiting for the proceedings. The AICL is studying what it can do as a public limited company without the NBFC license, said PM Salih, director-cum-CEO of the company. But more importantly, the company has no investor complaints against it.

pic used for representational purposes only

Apart from these companies, there have been several local ventures, which provide interest-free loans for persons and small start-ups, based on halal and shariah-compliance.  They have been started in association with local masjids, various Muslim organisations in the state or interested individuals coming together.

“Many Muslims in Kerala invest their money in banks, but write to the banks their preference not to receive any interest,” informed Dr AI Rahmatullah who is associated with the Indian Centre for Islamic Finance. But that interest amount could be collected and used to help those who have to pay back interest to banks, or can even be used for helping the poor and needy, he added.

The Sanghamam Multi-State Cooperative Credit Society Limited is a novel venture working on interest-free microfinance principle. The Society is currently running in Kerala, Tamil Nadu and Pondicherry.  It aims to mobilise the savings of its members through ‘Ayalkoottams’ (grouping of people in neighbourhoods) and the capital is then redistributed among the members as interest-free micro-credits which can be used for self-employment ventures and social enterprises. It works on a participatory profit-loss sharing basis. As of June 30, 2016, it had over 5,100 members with a share capital of Rs 2,23 crore.

In 2017, Kerala also the launch of Halal Fayidah, the first of its kind interest-free cooperative bank modelled on the lines of the Islamic banking system. Halal Fayidah hopes to attract investments from Muslims who had kept away from the formal interest-based banking system as it went against their religious laws.

The Kerala state government has time and again tried to begin a banking institution based on Islamic banking which could be used for infrastructure development in the state.  The plan was to collect capital from the NRIs in the Gulf countries and invest it in the construction of roads, for which toll can be levied. However, the plan did not work as Islamic banking was not approved in the country.  Now there is another plan for ‘halal chit funds’ under the Kerala State Financial Enterprises Limited. This also plans to collect funds from NRIs and use it for infrastructure development and would function based on Shariah-compliance, according to reports.

pic used for representational purposes( courtsey- social media)

While the above-mentioned ideas are likely to take time, it shows that a sound understanding of investments combined with honest expectations and returns have meant that while Kerala moves forward albeit slowly on the path to Islamic banking, Muslim investors in Karnataka and Andhra Pradesh and Telangana remain in lurch over when and if they will get their money.

Courtesy: Two Circles
 

The post Why Halal investments in Kerala do not make news for the wrong reasons appeared first on SabrangIndia.