RBI approval for Cheraman to boost inclusive growth

Updated 20 August 2013

RBI approval for Cheraman to boost inclusive growth

Indian and international Islamic banking experts have welcomed Reserve Bank of India’s decision allowing operation of an interest-free non-banking financial company (NBFC) in Kerala, saying it would encourage the country’s 200-million-strong Muslims to participate in the country’s development projects.
“It will have a big impact on the Indian economy and contribute to the expansion of Islamic banking and finance worldwide,” said Mohammed Azmi Omar, director general of the Islamic Research & Training Institute, an affiliate of Islamic Development Bank.
Cheraman Financial Services, based in Kerala's city of Kochi, plans to offer leasing and equity-finance products under Islamic principles. It said it had obtained approval to operate from the Reserve Bank of India and would follow the Islamic ban on interest; it will not take deposits from customers. Cheraman plans to roll out its products by the end of August.
“India has one of the world’s largest Muslim population and the RBI decision would help tap huge funds of these Muslims for Shariah-compliant investment projects,” Omar told Arab News. Islamic finance promotes inclusive growth and accelerates development of real economy, he added.
The RBI decision appears to open the door to the possibility of more NBFCs offering non-interest products in future, even though full-fledged Islamic banks are expected to remain banned.
Last year, the RBI directed Kochi-based Alternative Investments and Credits Ltd. (AICL) to stop its non-interest NBFC business almost a decade after the firm was launched. This prompted an ongoing legal challenge by AICL.
"The grant of an NBFC license should have an impact on the AICL proceedings and there are good chances that the matter may get settled soon," said Suprio Bose, Mumbai-based lawyer at Juris Corp., a law firm which previously represented AICL.
"The event reflects a significant and welcome change in RBI's attitude toward Shariah-based NBFCs and sets a precedent for others to follow suit."
However, many analysts think that unless and until full-fledged Islamic banks are permitted in India, an Islamic finance sector will find it hard to develop.
"I don't think there is going to be a rush for NBFC applications. RBI's attitude toward the Shariah-compliance concept is yet to be tested," said Shariq Nisar, director of research and operations at Mumbai-based Taqwaa Advisory and Shariah Investment Solutions.
According to central bank data, credit extended to NBFCs increased by 1.9 percent from a year earlier in June, compared with an increase of 43.9 percent in June last year. There are over 12,000 registered NBFCs in India.
“The RBI’s welcome decision will boost inclusive growth of the marginalized and the minorities,” said H. Abdur Raqeeb, convenor, National Committee on Islamic Banking, and general secretary, Indian Centre for Islamic Finance (ICIF)
Raqeeb said the interest-free financial system would benefit not only Muslims but also non-Muslims, adding that thousands of non-Muslims in Malaysia, UK, Singapore and other countries are its beneficiaries.
V.K. Abdul Aziz, secretary-general of Indian Forum for Interest-free Banking, also welcomed the RBI decision. “The fundamental objective of the interest-free banking system is to eliminate exploitation of borrowers. It considers lending as an investment and distributes investment risk between the users and suppliers of funds,” Aziz told Arab News. The system will also help eliminate poverty in the country, boost small and medium enterprises, and create more job opportunities, he added.

Saudi stocks receive landmark emerging markets upgrade from MSCI

Updated 21 June 2018

Saudi stocks receive landmark emerging markets upgrade from MSCI

  • Market authorities in Saudi Arabia have introduced a series of reforms in the past 18 months
  • MSCI’s Emerging Market index is tracked by about $2 trillion in active and global funds

LONDON: Saudi Arabian equites are poised to attract up to $40 billion worth of foreign inflows, following a landmark decision by index provider MSCI to include the Kingdom’s stocks in its widely tracked Emerging Markets index.

"MSCI will include the MSCI Saudi Arabia Index in the MSCI Emerging Markets Index, representing on a pro forma basis a weight of approximately 2.6% of the index with 32 securities, following a two-step inclusion process," the MSCI said in a statement late on Wednesday night Riyadh time.

“Saudi Arabia’s inclusion in MSCI’s EM Index is a milestone achievement and will likely bring with it significant levels of foreign investment,” Salah Shamma, head of investment for MENA at Franklin Templeton Emerging Markets Equity, told Arab News. 

“It is a recognition of the progress Saudi Arabia has made in implementing its ambitious capital markets transformation agenda. The halo effect of such a move will be felt across the stock exchanges of the entire Gulf Cooperation Council (GCC).”

Market authorities in Saudi Arabia have introduced a series of reforms in the past 18 months to bring local capital markets more in line with international norms, including lower restrictions on international investors, and the introduction of short-selling and T+2 settlement cycles.

Such reforms prompted index provider FTSE Russell to upgrade the Kingdom to emerging market status in March, opening the country’s stocks up to billions worth of passive and active inflows from foreign investors.

MSCI’s Emerging Market index is tracked by about $2 trillion in active and global funds. The inclusion of Saudi stocks in the index, alongside FTSE Russell’s upgrade, is forecast to attract as much as $45 billion of foreign inflows from passive and active investors, according to estimates from Egyptian investment bank EFG Hermes. 

The upgrade announcement was widely expected by the region’s investment community, following a similar emerging markets upgrade announcement by fellow index provider FTSE Russell in March. 

“MSCI index inclusion will be a historic milestone for the Saudi market as it will allow for sticky institutional money to make an entry in 2019 which will help deepen the market,” said John Sfakianakis, director of economic research at the Gulf Research Center in Riyadh.