Saturday, August 17, 2013

Financing Terror Secular Way


Market pull tests religious sentiment,
Saumya Roy and Gargi Banerjee, Mint, 9
March, 2007
In May 2006, when the Sensex, Bombay Stock
Exchange’s benchmark index, first crossed
12,000, a Muslim investor approached Ashraf
Mohamedy, managing director of Idafa
Investments, with a question.
The investor wanted to know whether it was
halal - or permissible - under Islam to invest in
the stock of Mid-Day Multimedia Ltd, a
publishing company that runs a popular
afternoon paper here and, like a lot of papers
these days in India, features photographs of
scantily clad women.
Mohamedy, who heads Idafa, one of two Indian
Shariah - or Islamic-law compliant - brokerages
in India, responded by immediately striking the
publisher off his list of companies in which a
Muslim can invest without running afoul of his
religious principles. ...
Fast-forward to today. The Sensex has risen to
13,049 points after a roller-coaster ride that saw
it cross 14,000 points last month, even though
Mid-Day Multimedia’s shares have actually
dropped from Rs72 to about Rs37 since May.
But even as Islamic investment and banking
services are gaining ground in many parts of the
world, Indian Muslims, bereft of most Shariahcompliant
offerings, are finding themselves
torn between the urge to invest in a booming
stock market—up a whopping 47% in
2006—and strict religious edicts that bar them
from earning income based on either
speculation or through interest-generating
Outside India, over 300 institutions spread
across West Asia, Europe, Asia and America
now offer Shariah-compliant banking and
financial services with assets valued at $500
billion, according to an FTSE Global market
report released in March 2006. HSBC Amanah,
the global Islamic banking division of HSBC
Group, alone has 110 million customers for its
Shariah-compliant banking in 77 countries. The
products are widely marketed and accessible to
Muslim investors. But in India, home to 150
million Muslims, there are just two
brokerages—Idafa and Parsoli Corporation
Ltd, with a combined customer base of just
around 2,000 clients—that currently offer
formal Shariah-compliant investment services.
“We did explore the demand for Amanah in the
Indian context and met the Reserve Bank of India in this regard but currently the regulatory
environment for banking in India does not
permit us to launch Amanah,” says Nicholas
Winsor, head of personal finance at HSBC
India, even as he notes that the “Muslim wealth
is substantial in India.”
HSBC isn’t alone in not being able to cater to
this potentially lucrative segment. Deutsche
Bank, ABN Amro, UBS and Citigroup also
offer Islamic financial products and services
globally but not in India.
Earlier this week, the government said in
Parliament that there was no plan to set up an
Islamic bank in India, throwing water on some
media reports that Prime Minister Manmohan
Singh had appointed a committee to explore the
On Saturday, Parsoli is organizing what it bills as
the first “Islamic Investment Opportunities”
conference in Mumbai to discuss Shariahcompliant
opportunities, complete with a
separate enclosure for women and
arrangements, during the day-long conference,
for Zohar prayers.
... The conference was organized by Zafar
Sareshwala, managing director of Parsoli, the
Ahmedabad-based brokerage firm which also
launched an Islamic financial portal at the event. Parsoli has been around for 15 years and is a
publicly-traded entity. Sareshwala says his
Shariah-compliant stock index has mirrored the
rapid rise of the Sensex. His apparent success,
even if with a very small client base, has
attracted attention, especially overseas.
Germany’s Baader Wertpapierhandelsbank AG,
the largest securities trading firm in Germany
and owner of Baader Bank, recently took a 30%
stake in Parsoli. While Indian Muslims may not
be beating a path to his doorstep, India’s sizzling
stock market is fuelling Sareshwala’s plans to
launch a fund, along with Baader Bank for West
Asian investors interested in Shariah-compliant
firms in India.
Sareshwala has tried to build investor
confidence by teaming up with religious
scholars such as Mufti Abdul Qayoom, who is
also an investor in the stock market.
“Traditionally, Muslims did not enter the
market because they equated it with gambling,”
says Qayoom. “But now they see that there are
opportunities to make money in a halal way.”...
Mohamedy updates his list of Shariahcompliant
stocks at regular intervals. At the
moment, the list includes roughly 15% of the
listed stocks on Indian bourses—780 of 4,600.
He meticulously avoids stocks of hotels, liquor
                companies, banks, tobacco firms, pesticides and
genetically modified crop companies. He also
avoids companies involved in gaming and
manufacturing products such as asbestos
because of their environmental impact. Islamic
practices also do not allow investing in
companies whose debt is more than a third of
their market capitalization and receivables are
less than 5%.
To be sure, not every Muslim investor is always
Shariah-compliant. One of Mohamedy’s clients
is Roshan Naik, the 75-year-old mother of
Indian television’s most famous Muslim
preacher, Zaquib Naik. Naik, who has been
investing in the market for more than three
decades, says she did invest in hotel and other
non-halal stocks in her early days though she
has since pruned her portfolio to Shariahcompliant
stocks in deference to her preacher
son. And she is a devout Muslim when it comes
to not having a bank savings account or even an
insurance policy....
Islamic Financng Makes Debut, Kausik
Datta, Business Standard, 24 June 2007: Srei
Infrastructure Finance is set to be the first
Indian company to go for Islamic Financing for
over 200 crore....Confrming the development,
Sunil Kanoria, director Srei Infrastructure
Finance said the company would finance the
details of the instrument is expected to hae a
five and a half year tenure. HSBC is the banker
for the fund collection.
RIL, TCS, nine others fit for Shariah laws,
Times of India, 28 June 2007
Eleven Indian companies have found their
place in Standard & Poor's Asia index for
investment that complies with the Shariah laws.
These 11 companies are part of the 71
companies from nine Asian nations that form
S&P's Pan Asia Shariah Index, the latest
addition to S&P's Global Shariah Index Series, a
release from the world's one of the leading
index providers said.
The 11 Indian companies include private sector
petrochemicals major Reliance Industries ,
software leaders Tata Consultancy Services and
Infosys , telecom major Bharti Airtel and oil &
gas sector major state-run the Oil & Natural
Gas Corporation.
The new index will enable Islamic investors to
benchmark their investment on a regional basis,
and give product providers the opportunity to
develop structured products tailored to the
Islamic market. The countries eligible for
inclusion are China, Hong Kong, India,
Malaysia, Philippines, Singapore, South Korea,
Taiwan and Thailand, the S&P release said.
However Australia, Japan and New Zealand are
excluded from the list, but S&P did not give any
reason for the exclusion.
S&P's Shariah indices exclude companies that
offer products and services considered
unacceptable or noncompliant according to
Shariah-law, such as advertising and media
(newspapers are allowed, sub-industries are
analyzed individually), alcohol, financials,
gambling, pork, pornography, tobacco, and the
trading of gold and silver as cash on a deferred
The 11 Indian companies are from industries
like power and electricity, communications, oil
and petroleum and fast moving consumer
India is fertile ground for Islamic investments,
Nidhi Sharma, Hindustan Times, 5 January
Now, it’s India Inc’s turn to play a religious card
but mercifully, for all the right reasons. The
nation has emerged as a key ground for Islamic
investments, under which speciality funds
pump in money only into those activities or
firms that are compliant with the principles and
ethics of Islam.
With billions of dollars being deployed by devout investors only in those entities that are in
conformity with Shariah laws, the opportunity
is huge. Since about 12 per cent of India’s
citizens are Muslims, Islamic finance is a
domestic fund opportunity as well.
As many as 2,730 listed companies in India are
Shariah compliant, says Talha Sareshwala, chief
finance officer at Ahmedbad-based Parsoli
Corporation Ltd, a BSE-listed non-banking
finance company that specializes in channeling
funds from domestic and non-resident Muslims
into the Indian market. (In 2007 only 11
companies were Sharih compliant? RIL, TCS,
nine others fit for Shariah laws, Times of India,
28 June 2007)
According to industry sources, Islamic
investments amounting to about $750 million
have already been made in the country’s capital
market and infrastructure sector over the past
few months....
“Almost 80 per cent of the companies are
Shariah compliant as far as the business of the
companies is concerned. The culture and ethos
of the Indian community is such that except
banks and financial institutions which are non
compliant there are only a handful of noncompliant
companies such as those involved in
gaming and casinos or alcohol manufacturing,” Sareshwala said.
Sareshwala dismissed criticism that Islamic laws
work against investment.
“Shariah is totally in favour of investment. Any
investment, which is in line with Islamic
principles, is not only allowed but also
propagated in Islam,” he said. Islamic or
Shariah Finance is not a new concept. It has
been there for nearly two decades now and has
caught in places including Britain, France,
Indonesia, Malaysia and Middle East countries.
Apart from stock market, equity mutual funds
may be a happening sector for Islamic Finance
to flourish. Mohamdey says, “Equity mutual
funds can play an important role to fill the void
of Shariah compliant products here. An ethical
fund like ‘Tata Select Equity Fund’ tries to fill
that gap, in a limited way.
If Shariah-compliant funds are offered,
following all the criteria of investments
prescribed by Islam and Shariah boards
certifying the products, it will give a lot of
assurance to investors about the authenticity of
claims made by any asset management
Shariah funds see above average returns,
Debjoy Sengupta, Economic Times, 11
March 2010.
This may come as a surprise. But Shariah or
ethical funds, which are compliant with Islamic
investment laws and available from only two
insurers — Bajaj Allianz Life Insurance and
Tata AIG Life Insurance — are doing much
better in terms of returns on investment (RoI)
than a host of traditional funds.
Though total assets under management for
these funds in the insurance sector is a modest
Rs 525 crore, which has been mopped up over
the last 3-4 years, returns were as high as 109%
compared to the CNX NSE Nifty Index, which
registered a 70% growth during the same
"Interestingly, India offers more Shariahcompliant
stocks than any Islamic country, and
according to Taqwaa Advisory and Sharia
Investment Solutions (TASIS) — the leading
agency for making financial instruments
Shariah-compliant , 20% of the market cap in
BSE as well as NSE are from Shariat-compliant
stocks," said Sashi Krishnan, chief investment
officer at Bajaj Allianz.
"Bajaj Allianz has been managing its Pure Stock
and Pure Equity Fund for over five years, which
are based on ethical investment principles
similar to Shariah norms. The company's total
assets under management for Shariahcomplaint
funds are around Rs 418 crore and
returns have been extremely high. For instance,
the Pure Stock Fund garnered a 97% return in
comparison to the Nifty index fund which was
72% in the last six months," said Mr Krishnan.
Tata AIG recently entered the fray with three
funds. "We have already mopped up around Rs
105 crore for these funds in about a year.
These funds offered a 10% higher return than
the Shariah 500 Index," said Tata AIG Life
chief investment officer Saravana Kumar
"Insurance, per se, does not comply with
Shariah laws, and hence, we do not have a
Shariah-certified insurance policy that is linked
to any of our ethical funds. But we have
launched a pension plan that is Shariah certified.
It is a niche product but the fund is doing very
well," added Mr Krishnan.
"Ethical funds do not invest in sectors
considered 'haram'. And in case any portion of
the fund earns any interest while it is lying with
banks even for a brief period of time, we purge
the interest by donating it to charitable
institutions. These funds cannot be invested inDecember 1992 Temple FIR No. 46/92 Achabal
any interestbearing instruments, bonds or debt
products. They can only be invested in pure
equities, that too the sectors allowed by the
Islamic law," said Mr Krishnan.
Although the potential is huge in India with its
near 160 million-strong Muslim population (the
secondlargest after Indonesia), investment
avenues are limited despite the strong demand
for Shariah-compliant products. Also, there's
also a lack of awareness across the targeted
segment of population.
RBI says autonomy threatened, ET
Bureau, Economic Times, Mumbai, 6 Aug,
HYDERABAD: Reserve Bank of India (RBI)
governor Duvvuri Subbarao on Thursday said
the autonomy of the monetary policy is under
threat. Coming days after the government took
Parliament's approval to spend the telecom
auction proceeds and amid hints by the finance
minister that interest rates should not rise too
rapidly, Mr Subbarao's statement could stoke
the brewing autonomy debate between the
central bank and the government.
"The jury is still out on the issue of fiscal
dominance of monetary policy. But it will be
less than honest not to acknowledge that the autonomy of monetary policy from fiscal
compulsions is once again under threat, and
resolving that threat requires credible efforts by
both governments and central banks," Mr
Subbarao said while delivering the CD
Deshmukh Memorial Lecture in Hyderabad on
Asian growth attracts Shariah banks from
Gulf, Economic Times, 11 August 2010
Al Salam Bank BSC, Bahrain's fastest-growing
lender by revenue in the past year, plans to
invest $500 million of Islamic funds in Asia,
joining Saudi Arabia's Al Rajhi Group in
tapping the region's growth.
Al Salam Bank will put funds into real estate,
agriculture and food in the next five years,
focusing on Malaysia, Indonesia and Singapore,
Yousif A. Taqi, chief executive officer at the
Manama-based bank, said. Al Rajhi is looking to
invest $200 million in Asian property, Jonathan
King, director at AEP Investment
Management, which is 80% owned by the Saudi
group, said in Singapore.
"Asia is a very fertile land for Islamic banking as
this is where the growth is," said Taqi at Al
Salam, adding that capital had increased to $2
billion in 2009 from the bank's inception three
years earlier. "Our existing investment in Asia is $200 million and in Europe it won't exceed $100
Banks and financial institutions in the Persian
Gulf are turning to Asia to profit from the
economic recovery and rising property prices.
Dubai real estate has dropped more than 50%
from a peak in August 2008, according to
estimates from Colliers International. Prices in
Malaysia rose 3.3% in the past year, 25% in
Singapore and 2.5% in Indonesia, according to
the Global Property Guide website.
The International Monetary Fund said on July 7
that developing economies in Asia will expand
9.2% in 2010, compared with 2.6% growth for
advanced countries and 4.5% for the Middle
Eastern economies.
..AEP is looking to tap wealth in Singapore,
which has a Muslim community that is small
relative to its Southeast Asian neighbours,
accounting for 15% of a resident population of
about 3.7 million, according to the central bank.
In Malaysia, the proportion is 60%, the statistic
department's website shows, and 86% in
Indonesia, according to US government data.
"We are looking at Islamic capital in non-
Islamic markets and across the Asia-Pacific
region," AEP's King said. "Our investors will come from Singapore, Brunei, the Middle East,
Saudi Arabia and Qatar."
Riyadh-based Al Rajhi Bank, the world's largest
publicly traded Islamic banking group with $46
billion of assets, started providing banking
services that comply with religious tenets in
Malaysia in 2006.
Shariah-compliant loans slumped to a five-year
low in Europe, the Middle East and Africa this
year on credit-ratings downgrades and falling
property prices.
Islamic syndicated loans declined 56% to $2.3
billion, compared with a 9.8% increase in total
lending to $402 billion.
Global issuance of bonds that comply with the
religion's ban on interest has also dropped this
year, limiting investments for Shariahcompliant
banks. Asian sales are double those
of the Middle East so far in 2010 as real-estate
borrowers struggled to raise funds.
Interest-free Islamic banking a boon for
poor, Lobby Pushes RBI, Fin Min To
Introduce Such Windows, Nandita
Sengupta, Times of India January 7 2011
Proponents of Islamic banking have welcomed
the Kerala high courts move to dismiss a
petition challenging the state governments support to an Islamic financial institution.
Rooting for India to include interestfree
windows in conventional banks, Abdur Raqeeb,
general secretary of the Indian Centre for
Islamic Finance said nations around the world
were looking seriously at Islamic banking. If the
UK, Hong Kong, Singapore, France can
incorporate Islamic banking, India too can look
at it, he said, adding that they had given the RBI
and the finance ministry a report to start an
interest-free window in conventional banks
within the existing Indian banking regulation
act. We are hopeful, he said.
Conventional banks have started testing the
waters, making inroads into the new format. In
2008, Malaysias Securities Commission, which
aims to make the country a hub for global
Islamic banking, approved Reliance Asset
Management as an Islamic fund manager.
Banks like ICICI and Kotak have
shariacompliant windows in their Gulf
operations. Asset management firms offer such
services, too. But they are at a nascent stage and
may grow with Gulf funds and NRIs as
potential investors. Sensing the need for
alternative banking systems after the 2008
recession, Aligarh Muslim University started a course on Islamic banking.We sensed that the demand
for such a course will grow, Mohammad Nejatullah
Siddiqui, a former AMU professor who designed the
course, said. Although all students in the first batch that
graduated last year did not find jobs, Siddiqui said the
demand was growing with corporate houses offering
Islamic financial instruments.
To that end, the Kerala case, though restricted to
investing in a non-banking financial corporation, is a
step in the right direction. If the Kerala initiative goes
ahead, it will be good. Raqeeb underlined the need to
understand that Islamic banking was not Muslimspecific.
In Malaysia, 40% of customers are non-
Muslims. Its perfect for those who need equity finance
and applicable for all the underprivileged.
Although government loans are available, few Muslims
avail them as they are interest-based. Its no good for
other backward people as they are not creditworthy,
said Siddiqui. No ones looking at Islamic banking for
the love of Islam, or for the love of Muslims. They do it
for the love of money, said economist Ausaf Ahmad,
formerly with the World Bank, adding, Transparency
and regulation are key issues, he said. But its worth the
investment in creating a legal framework to suit the
Islamic NBFC Alternative Investments and
Credits to move court against Reserve Bank of India, Sugata Ghosh, Economic Times, 7 May
The cold tussle between advocates of Islamic finance,
which forbids the use of interest rate, and the Indian
banking regulator, which is adamant that local laws
prohibit such funding, is headed for a climax.
Alternative Investments and Credits (AICL), the
Kerala-based firm that has been stripped of its licence
to carry out non-banking finance activities by the
Reserve Bank of India, is planning to move court
against the central bank. AICL, which is among the very
few Islamic finance entities in the country, will also take
up its case with the finance ministry.
A director of the company told ET that the board is
weighing legal options to obtain a stay on the regulator's
decision to cancel the certificate of registration.
Till now there was a widely shared perception that while
commercial banks planning to offer Islamic banking
products will run into legal hurdles, non-banking
finance companies will face no restrictions. That has
now changed, with RBI directing AICL to stop
financing business almost a decade after it was founded.
Earlier, the central bank had pointed out that the NBFC
was not complying with the fair practices code under
which the financier has to lay down the terms and
conditions of funding, including the interest charged.
"Basically, the Indian banking and finance system runs on the interest concept and Islamic finance is based on
profit-sharing," said an RBI spokesperson on
Thursday, a day after the regulator revoked AICL's
As a genre of financial services, Islamic finance abhors
the idea of making money out of money and upholds
the belief that wealth is generated through actual trade
and investment. Across markets, funding structures of
Islamic finance institutions have to be compliant with
Sharia'h, the sacred law of Islam.
While RBI's directions will have to be complied with by
all NBFCs - irrespective of whether or not it's operating
as per Sharia'h - the question is what constitutes
"interest" for the purpose of RBI guidelines, especially
in the present context of RBI's NBFC Fair Practice
"In our view, there are no stipulations under the
regulations issued by the RBI which prevents a nondeposit
accepting NBFC from carrying out interestfree
or participative financing," said Suprio Bose of the
law firm JurisCorp, which has advised AICL in the past.
In the conventional sense, "interest" means a fixed rate
of return on the principal loan amount or a floating rate
linked to a pre-specified benchmark. But commercially,
various financing structures operate on the model of
expected or internal rate of return, which would qualify
as "interest" for the purpose of the RBI guidelines.
Bose and his colleagues at JurisCorp think it should be possible for NBFCs looking at Sharia'h-based
financing to take a middle path. NBFCs, they feel, can
consider utilising the concept of net return and disclose
the same to ensure compliance with the RBI directions
on Fair Practice Code and the Sharia'h principles. But it
now appears that the regulator is unwilling to accept
If the matter reaches the court, the outcome would
decide the fate of Islamic finance in India. The AICL
director said in the meanwhile the company may pursue
other Sharia'h-compliant businesses that are outside
the purview of the central bank.
RBI's recent reaction could be partly driven by the turn
of events following a petition moved by Janata Party
president Subramanian Swamy a year and a half ago,
challenging the Kerala government's decision to
support another state-based group carrying out Islamic
In the course of the hearing, it was mentioned that RBI
had permitted registration of a few NBFCs carrying
out Islamic finance. This, some feel, could have driven
RBI to cancel AICL's registration. With a paid-up
capital of 7.5 crore, AICL's liability comprises
shareholder funds, while the assets are various non-loan
funding in the form of participative finance. As per this,
the 'borrower' shares the profits of the business with
AICL in proportion to the equity capital of the borrower and the amount provided by AICL; and the
profits are shared only if the borrower has earned them.
In case of losses in any year, no outstanding is fixed for
future recovery.
In the past, RBI has been reticent in spelling out its
stand on Islamic finance. Some years ago, it had
constituted a committee to look into the possibilities of
Islamic finance in India. The report, which surprisingly
was not put on the official website, had said that neither
banks in India nor offshore offices of Indian banks can
practice Islamic banking.
"It's unfortunate that RBI has taken such a stand with
regard to AICL. We have to plan the next course of
action," said Abdur Raqeeb, general secretary, Indian
Centre for Islamic Finance. According to him, Islamic
finance has taken off in many markets and Sukuk bonds
have emerged as an option in infrastructure finance.
"Even financial centres like Hong Kong have tied up
with authorities of other countries to initiate Islamic
finance. RBI, I feel, should take a more liberal view,"
said Raqeeb.
Srei arm buys ICICI Bank's Kingfisher Airlines
debt Times of India, 3 July 2012
MUMBAI/KOLKATA: ICICI Bank has oflloaded its
entire Rs 430-crore debt exposure in Kingfisher
Airlines (KFA) to a debt fund of Srei Venture Capital
(SVCL), the fund management arm of Kolkata-based
Srei Infrastructure Finance.
The loan has been sold by the private bank along with
the collateral that comprised shares of UB group's
liquor company, sales of which will help Srei generate
steady revenue from the asset.
A Srei official told TOI, "The fund saw an opportunity
in the securities and commensurate returns being
offered for this proposal. India Global Competitive
fund of SVCL has bought the exposure." The official
also clarified that the loan would not be in the books of
Srei Infrastructure Finance.
When contacted, an ICICI Bank spokesperson
admitted that it has recovered the entire debt exposure
to KFA. The loan sale has taken place three days ahead
of a meeting of lenders to discuss the future course on
KFA. Although public sector banks hold the bulk of
the airline's Rs 7,000-crore debt, they do not have
enough collateral as security to recover their loans even
if they chose to sell the airline's assets. Unlike other
lenders who were forced to classify their loans as a nonperforming
asset, Kingfisher Airlines' loan was a
standard asset on ICICI Bank's books, which means
that the airline continued to service its repayment
obligations to the bank. However, the loan was
restructured once, which means that the bank had
revised the repayment terms after the airline had
difficulties in meeting its contracted obligation.
Given that public sector lenders do not have the kind of
security that was there with ICICI Bank, it is unlikely
that they will find financial investors like Srei without
selling at distressed prices. Other than ICICI Bank, all
major lenders have classified KFA as a non-performing
asset, which means that every quarter they set aside a
portion of their profits to make provisions for this loan
having gone bad. Without enough collateral as security,
the best case scenario public sector lenders hope for is
opening up of the aviation sector for foreign direct
investment. Some lenders feel that getting new
investors, coupled with a debt reduction strategy, would
enable KFA to be refloated again.
Meanwhile promoter Vijay Mallya's stake in the airline
has dipped to 35.86% following conversion of
warrants issued to LKP Finance into equity. The NBFC
now holds over 16% in KFA.
New Banks Need of the Hour: Ranga ; Shaji
Vikraman, Vinay Pandey & Deepshikha Sikarwar,
9 July 2012, Economic Times,
The Reserve Bank of India should consider licensing
new banks even without amending the Banking
Regulation Act,a key policy advisor to Prime Minister
Manmohan S ingh ha s s a id.Cha k r ava r thy
Rangarajan,the influential chairman of the Prime
Ministers Economic Advisory Council,also described
India as an outlier as the combination of slowing growth and high inflation made it difficult for the
Reserve Bank of India to emulate central banks of its
BRIC counterparts,such as China and Brazil,by cutting
rates.I see that there is a scope for more banks to come
in as they come with new ideas I think if old regulations
are inadequate,then they must be modified otherwise
RBI can also consider using old regulations,on the basis
of which it can give new licences, Rangarajan said in an
interview on Saturday.RBI has called for changes in the
Banking Regulation Act to enable it to supersede the
boards of banks and the legislation has been cleared by
Parliaments standing committee. The bill, which has
long been in the works and contains a slew of changes,
including raising the voting rights of individual
investors to 26% in private sector banks, may be passed
in the monsoon session of Parliament. Rangarajan, a
leading monetary economist and governor of RBI
from December 1992 to November 1997,expressed
sympathy on the dilemma confronting the Indian
central bank, which is being implored by industry and
sections of the government to immediately cut rates to
revive economic growth that is currently at a nine-year
low, even as inflation refuses to recede. We are an outlier
(in not cutting rates) but we have a problem which they
(other BRIC nations) do not have. Many of them have
slow growth, but they also have low inflation. We have
slowing of growth, not low growth, which is distinct
and a high inflation, he added.
Keep Of f Banks, Reddy Tells Govt.,
Shaji Vikraman & Gayatri Nayak Mumbai , 17 July
2012, Economic Times,
YVReddy, the former central bank chief, has called upon
the government not to attempt to micromanage public
sector banks and let the regulator retain a firm hand on
the tiller. Reddy, whose conservative policies are widely
regarded as having insulated Indias financial systemfrom
the global economic meltdown of 2008,appeared to
endorse the views of his successor Duvvuri Subbarao,
who last week said the finance ministry should
demonstrate exemplary corporate governance by
exercising its ownership rights through bank boards.
Subbaraos remarks appeared to have been prompted by
frequent letters from department of financial services
secretary DK Mittal, issuing detailed directions to stateowned
banks on operational matters such as capping
bulk deposits at 10%of total deposits. The regulator has
to regulate. The majority owner, in terms of corporate
governance, cannot dictate operationally, Reddy said in
an interview to ET on Monday, adding that detailed
instructions to banks were contrary to the spirit of
New Delhi: The finance ministry has written to RBI to
finalize guidelines for issuing new banking licences and
start receiving applications, underlining the government’s urgency to push for the entry of new
banks. FM P Chidambaram said he had assured RBI
that the Banking Regulations Act will be amended in
the Winter Session, if not in the Budget Session. The
banking regulator wanted the legislation to be approved
by Parliament before finalizing the guidelines.
“We have written to the RBI recently urging them to
proceed to finalize the guidelines and proceed to
receive applications for new banking licences in
anticipation of the amendment in the banking
regulation act,” Chidambaram said after meeting heads
of state-run banks. The issue of new licences has been
catapulted into the spotlight as the regulator wanted its
role enhanced, including powers to oversee mergers
and acquisitions in the sector.
In fact, three years ago, Pranab Mukherjee, then finance
minister had taken RBI by surprise by announcing that
new licences would be issued. The government has
argued that new licences are critical to take banking to
rural areas and meet its financial inclusion goal.
On Thursday, Chidambaram said the first banking
licence is unlikely to be issued in the next six to eight
months even if RBI decides to accept and process the
The government is keen that new banking licences are
rolled out soon, which will add to the string of reform
measures it has announced since September. It is likely
to send positive signals to the investors.
Now Terror plays on bourses, Times
of India, 15 February 2007
Terror groups operating with the
support of Pakistan have resorted to
carefully charted manipulation of
Indian stock exchange that often exists
only on paper, to raise millions of
dollars for planning and carrying out
strikes against India.
....Speaking at a conference on
International Security at Munich last
week, Narayanan said that isolated
ins t anc e s of t e r ror i s t out f i t s
manipulating the stock exchanges have
been reported..stock exchanges in
Mumbai and Chennai have, on
occasions, reported that fictious or
notional companies were engaging in
stock market operations”.
The NSA also spoke of a conspiracy by
Official agencies “in Pakistan an
euphemism for the ISI or Inter Service
Intellegence, for the plot to carry out
economic subversion”of financial
...The NSA outlined the complex mix of funding routes, through stock exchange
banking channels ordinary ATM
withrawls and hawala trails, as well as
operations of legitimate business like
hotels and transport, used by modern
terrorism to sustain and launch their
West still looking at Islamic finance
through terror prism, Landon
Thomas, Mint, 10 August 2007.
Before the 11 September attacks, Prince
Muhammad al-Faisal al-Saud felt
welcome in America. A member of the
Saudi royal family and a pioneer of
Islamic finance, he was a pillar of a Saudi
business establishment that has long
relished its ties with the US.
Since then he has kept his distance. The
company he founded in 1981, Dar al-
Maal al-Islami Trust (DMI)—a
Bahamas-incorporated holding
company with a portfolio of Islamic
banks in Bahrain, Niger, Egypt and
Pakistan—is a defendant in a
consolidated$1 trillion (Rs. 40.5 trillion)
lawsuit brought by the families of those
who died on 11 September and his
lawyers have advised him not to set foot in the US as the case winds its sluggish
way through federal court in Lower
Though the prince was originally named
in the case, the lawsuits against him were
dismissed in 2005. The prince is less well
known - he shuns publicity - than two of
his brothers, Prince Saud al-Faisal, the
Saudi foreign minister, and Prince Turki
al-Faisal, the former Saudi ambassador
to the US. But as chairman of DMI, he is
the public face of the sprawling
financial conglomerate, which has been
accused of aiding terrorism. More than
that, the princeand by extension DMI
represent vividly the discordant views
that have surrounded Islam and money
since 11 September.
Some see him as a founding father of
Islamic finance, a thriving piece of the
global economy that approaches$800
billion in assets; others view the prince, a
follower of the puritanical Wahhabi sect
of Islam, as the invisible hand behind a
flow of money toAl Qaeda.......
Fuelled by soaring oil prices and an
increasingly open investment climate,
capital is flowing to West Asia, often steered to institutions like DMI and its
subsidiaries, which, to comply with
Islamic law, shun interest and
speculation in favour of investments in
which the borrower and lender share
both risk and reward.
Yet, in the wake of the attacks on 11
September, the tendency to connect the
businesses of established Muslim
financiers to Islamic extremism
continues. That point became clear last
year duringthe outcry over whether DP
World, a Dubai-based port operator,
should run terminals in the US.
Even now, such suspicions show no sign
of abating. Many other Muslim
institutions have been named in the suit,
and last month Mariane Pearl, the wife
of the slain Wall Street Journal reporter
Daniel Pearl, sued Habib Bank, the
largest bank in Pakistan, accusing it of
providing banking services to charities
that supported terrorist organizations...
In their complaint, lawyers for 11
September relatives argue that the early
alliances formed by the prince with
conservative political and religious
figures in Sudan and Egypt as well as the banking services DMI has provided to
people and organizations who would be
declared terrorists after 11 September
are proof that the prince and the trust
have “conspired with Al Qaeda and the
other defendants to carry out terrorist
To support their case, investigators for
the plaintiffs have gathered documents
that show that Wael Jelaidan, a
suspected founder of Al Qaeda who
was designated a terrorist by the US
government in September 2002,
maintained an account at Faisal Finance,
DMI’s Swiss banking unit, from January
1997 to July 2003 that grew to be as large
as $405,000. Jelaidan, through his
lawyer, Martin F. McMahon, has denied
links to terrorist organizations.
An even more significant client of Faisal
Finance—now called Faisal Private
Bank—was Yassin Abdullah Kadi, a
prominent Saudi businessman and a
past shareholder of DMI who was
designated a terrorist in October 2001
for his ties to Islamic charities accused
of providing financial support to
terrorists. ..
Other documents collected by plaintiffs
show that two extremist groups in
Pakistan that have been designated by
the US for their support of terrorism
maintained deposit accounts at Faysal
Bank Ltd, DMI’s banking affiliate there.
One is Lashkar-e-Toiba, an armed
group fighting India in the disputed
region of Kashmir, and another, Lajnat
al-Dawa, is a Kuwait-based foundation
that has links to Al Qaeda, according to
the US treasury’s website....
The complaint also focuses on the ties
Prince Muhammad had with religious
personalities like Hassan al-Turabi from
Sudan, who was a supervisory director
of the trust from 1982 to 1992, and
Yusuf al-Qaradawi, who was an early
religious adviser to the trust until he left
in 1994.
Turabi was a once-powerful political
figure in Sudan who welcomed Osama
bin Laden to the country in 1991. Faisal
Islamic Bank in Sudan, a past affiliate of
the trust, was a major financial sponsor
of Turabi, the complaint contends. And
Qaradawi, a prominent Islamic scholar
from Egypt, has been linked to the Muslim Brotherhood, although he did
condemn the 11 September attacks.
Finally, the complaint highlights some
fier y language used by Prince
Muhammad in a 1984 letter to
shareholders in which he says, “May
Allah bless your jihad and allyour
Technically a trust, DMI functions as a
holding company, with ownership
stakes in Islamic banks in Pakistan,
Egypt and Africa, investment banks in
Bahrain and the Faisal private bank in
Geneva. It also manages $1.5 billion for
largely Muslim clients, invested
exclusively in businesses and funds that
are in tune with Islamic law, like real
estate and private equity.
Since recording a loss in 2000, its
fortunes have soared as capital has
flowed to the region and the trust
posted a record profit of $52 million last
year. Yet the spectre of the lawsuit hangs
over the company, and it has spent
millions of dollars on legal fees. “We will
take this case to the Supreme Court if
need be,” Janahi said. DMI’s motion to
dismiss, along with 107 similar motions
from other defendants in the case,
awaits a decision from judge George B.
Daniels ofthe federal district court in
New FDI rules raise eyebrows,
Economic Times, 13 February 2009
The new foreign direct investment
(FDI) norms, announced by the UPA
government, has opened a can of
worms. They allow foreign investment
to enter restricted sensitive sectors
through a circuitous route, and to beat
sectoral caps in areas like telecom,
aviation and the media, said experts.
Unless, of course, the detailed
guidelines, yet to be issued by the
government, address some of these
The cornerstone of the new FDI norms
is the notion of control by resident
Indians. If a company A, in which
foreigners have a stake, is controlled by
resident Indians, the new norms hold
that any investment by A in other
companies would have no element of
foreign investment. Till now, the norm
was that foreigners would be deemed to have a stake indirectly in the companies
in which Company A has invested,
proportionate to the foreign holding in
Company A. According to the revised
norms, there is no concept of any
indirect holding — if the investing
company is controlled by resident
Indians, its foreign investors are deemed
to have no stake in other corporate
entities in which this company invests.
(In the case of a 100% subsidiary of a
majority foreign-owned company,
foreign investors are deemed to have the
same stakeholding as in the parent
According to investment bankers, even
the existing sectoral foreign investment
caps are insufficient to restrict foreign
control. Even with a minority stake,
foreign investors are able to exercise
effective control through a variety of
shareholder agreement clauses,
preferential shares, 'economic interest',
etc. The revised FDI norms undermine
the caps even further, making it easier
for foreign investors to own — directly
and indirectly — a larger share of the
company they want to run, and to control it.
"The government is playing a trick," said
Mukesh Butani, partner, BMR&Co,
"trying to demonstrate that we have
FDI restrictions in sensitive sectors".
But, he went on to add that given the
current economic reality, we want to
allow this leeway.....
Shareholder agreements can vest in the
minority foreign shareholder executive
authority, super minority provisions to
vote against a resolution even with a
minority shareholding, right to demand
consultation before decisions are made,
right of first refusal, etc. Sectoral FDI
caps in telecom, insurance and media
have given birth to creative holding
Lenders have better rights than equity
shareholders. In these days, commercial
loans to companies are attracting
management rights. As a result, it is
possible to manage companies with
lender nominees on company boards -
in the garb of protecting lenders
As regards the provision that
government/foreign investment promotion board permission is required
for transfer of ownership from
residents to non-residents is concerned,
this is meaningless on two counts. In the
first place, ownership is not necessary
for a foreign entity to control an Indian
company, as explained above....
(about 6 percent ownership of
Citigroup is with Al-Waleed Bin Talal a
Saudi Arabian business tycoon and
investor. A nephew of King Abdullah,
he is a member of the Saudi royal family.
In 1999 The Economist expressed
doubts about the source of income of
Prince Al Waleed and whether he is a
front man for other Saudi investors. His
real estate holdings have included large
stakes in the Four Seasons hotel chain
and the Plaza Hotel in New York. He
sold half of his shares in the latter in
August 2004. He has made investments
in London's Savoy Hotel and Monaco's
Monte Carlo Grand Hotel. He currently
holds a 10% stake in Euro Disney SCA,
the company that owns, manages and
maintains Disneyland Paris in Marne-la-
In January 2005, Al-Waleed purchased the Savoy Hotel in London for an
estimated GBP £250 million, to be
managed by Fairmont Hotels; his sister,
Sultana Nurul Al-Waleed owns an
estimated 16% stake. In January 2006, in
partnership with the U.S. real estate firm
Colony Capital, Kingdom Holding
acquired Toronto, CA-based Fairmont
Hotels for an estimated $3.9 billion.)
Grameen Bank At A Glance
O c t o b e r , 2 0 1 1 ;
( h t t p : / / w w w . g r a m e e n -
= 0 ; o n 3 1 m a y 2 0 1 2 a t
5 PM)
14.0 Low Interest Rates
Government of Bangladesh has fixed
interest rate for government-run
microcredit programmes at 11 per cent
at flat rate. It amounts to about 22 per
cent at declining basis. Grameen Bank's
interest rate is lower than government
Recently MRA has fixed the maximum
interest rate for microcredit at 27% on
declining balance method and instr ucted the NGO-MFIs to
implement this capped interest rate
within June 2011.MRA found in a recent
survey the effective interest rate of
NGO-MFIs on General Loan ranges
from 25% to 33% and the modal value is
29%.On the contrary Grameen Bank's
highest interest rate is 20%.
Microfinance Transparency an
internationally reputed pricing
certification agency also verified the
pricing of Grameen Bank loan products
and found that GB actually charges the
same interest as it publicly claims.
There are four interest rates for loans
from Grameen Bank : 20% for income
generating loans, 8% for housingloans,
5% for student loans, and 0% (interestfree)
loans for Struggling Members
(beggars). All interests are simple
interest, calculated on declining balance
method. This means, if a borrower takes
an income-generating loan of say, Tk
1,000, and pays back the entire amount
within a year in weekly instalments, she'll
pay a total amount of Tk 1,100, i.e. Tk
1,000 as principal, plus Tk 100 as
interest for the year, equivalent to 10% flat rate.
15.0 Deposit Rates
Grameen Bank offers very
attractive rates for deposits.
Minimum interest offered is 8.5
per cent. Maximum rate is 12 per
Trade push reshaping Islamic
finance's regional rivalry,
Frederik Richter and Liau YSing,
Economic Times, 20
August 2010
...Islamic finance claimed the
moral high ground during the subprime
mortgage crisis which
floored the global banking system,
but its reputation has taken a
beating after the slowdown
exposed gaps in the relatively
young $1 trillion industry.
For some investors, Islamic
finance has become a byword for
inconsistent standards and opaque
markets as soured sukuk and sharia
banking deals are played out in
In particular, investors are demanding more transparency after
wrestling with patchy data and gaps in
company disclosures, particularly in the
Middle East....
"In the Middle East, in certain
jurisdictions it's not even regulated so
how can you harmonise?" said Megat
Hizaini Hassan, who heads the sharia
banking and finance transactions
practice at Malaysia's top law firm Zaid
Ibrahim & Co.
ATS wants to 'paralyze' IM's money
wing, Mateen Hafeez, Times of
India, 6 February 2012,
The anti-terrorism squad (ATS),
probing the 13/7 serial blasts, is chasing
the financial wing of the outlawed terror
outfit, Indian Mujahideen (IM), and
wants to paralyze it. "Without funding, it
will become difficult for the IM to run
its modules. The outfit requires money
to continue its activities," said ATS chief
Rakesh Maria.
The IM's hawala operations had come
to light following the arrest of Kanwar
Nain Pathrija from Delhi. A hawala
operator, Pathrija had allegedly received
Rs 10 lakh from Dubai and he later handed over this money to IM cofounder
and 13/7 mastermind Yasin
"Our priority is to get all the
information about the IM's financial
wing and completely paralyze it so that
the outfit can not run other operations,"
said a police source. In the past, four
brigades formed by the IM to carry out
terror attacks in Indian cities were
crippled after the arrest of two dozen
IM suspects.
Sources in the security establishment
said two diaries seized from Pathrija
cont a ined r e cords of hawa l a
transactions to the tune of Rs 2 crore
that took place in the last one year. It is
learnt that the police have found the
financial records of over Rs two cores
from Pathrija's diary.
"However, the money sent by IM
operative Haroon Rasheed Naik from
UAE is just Rs 10 lakh. We are scanning
other people who had sent and received
money through hawala channels," said
the source.
According to the police, the IM has four known wings, the Shahabuddin
brigade to strike in south India,
the Mahemood Ghaznavi
brigade to strike in the north, the
Shaheed Al-Zarkavi brigade to
attack VVIPs and the media cell
which sends emails. "The IM's
media cell has been completely
paralyzed. The outfit stopped
using the terror-email technique
after we traced the origin of
such emails and arrested its
operatives," another officer said.
It is learnt that IM members in
the Gulf have been using
various tactics to raise funds,
including collecting money in
the name of schools and
orphanages. or ; they also
collected money stating it would
be used for the educational
purpose of the community.
Policemen, who interrogated
the arrested IM members, said
the recruits are lured with
promises of big cash rewards
upon completion of a job. "The
money collected through various means is sent to senior
IM operatives. They use the
money to pay sleeper cells and
on new recruits. It seems money
ha s be come the i r ma in
motivation now," said a source.
In the 13/7 case, Rs 10 lakh was
sent to Pathrija. He handed over
this money to IM operative,
Yasin Bhatkal who in turn sent
Rs 1.5 lakh to another accused,
Naqi Ahmed.
"Once we break the financial
system of the outfit, it will be
completely crippled. We are
taking time in verification and
chasing other suspects. We feel
that the investigation of
financial trail will lead us to a
bigger racket," said an officer.
Ship-breaking route for
D-Company Bringing In
Arms Through Guj-Based
Arun Janardhanan, 16 July
2012, TNN
Chennai: Dawood Ibrahim and
his aides have a major stake in
the multimillion-dollar shipbreaking
industry in India,
according to an intelligence
report by the ministry of
The report says certain Pakistani
nationals involved with the
D-Company, based in London
and the UAE, have a major stake
in the countrys ship-breaking
industry, investing crores of
rupees in the environmentallyhazardous
industry based in
Alang, Gujarat. Intelligence
sources said the Pakistani
nationals fix deals by paying in
hard cash with the collusion of
corrupt officials.
Intelligence agencies briefed an
inter-ministerial committee in
Delhi in February 2012 about
the entry of Dawoods aides into
the industry and the potential
security threat implications, said
sources in the directorate of
naval intelligence.
D-Company men smuggle
c o n t r a b a n d , a r ms a n d
explosives with the participation
of foreign agents during their
ship dismantling operations, the
report says. Dawoods men use
money laundering to fund the
deals and many end-of-life
vessels that arrive at the ship
breaking yards in Gujarat simply
disappear from anchorage after
a short while.
Officials said the current
system,which permits a free run
to vessels carrying dismantling
permits,has allowed criminals to
enter the industry.The system
has to be regulated and every
vessel should be thoroughly
checked by the navy, said a naval
officer. Clearances from the
MoD have to be made
mandatory for the entry of
vessels for dismantling in India.
At present, ships bound for
Alang are permitted to anchor
anywhere for emergency repairs.
High profit margins, cheap labour and the opportunity to
include drug smuggling and
gunrunning in the trade attract
the underworld to the shipbreaking
trade. Intelligence
sources said the government has
been alerted on several occasions
about ships disappearing to
unknown destinations from the
Shipping and marine security
expert Veeresh Mallik said,
Apart from smuggling and
activities that put national
security at risk, many foreign
flagged vessels come to Alang
a n d l e a v e wi t h f o r g e d
registrations. Many such vessels
have origins in safe heavens for
smuggling in the Persian Gulf
and off the African coast.
Terrorist outfits investing in
Indian stock markets: Sushil
Kuma r Shinde , Home
ET Bureau, Economic
Times, 7 Nov 2012
NEW DELHI: Terrorist outfits
are investing in the Indian stock
market through spurious
companies, home minister
Sushil Kumar Shinde said at an
Interpol General Assembly
meeting in Rome on Monday.
Calling terror funding the
'lifeblood of terrorism', Shinde
said he had credible intelligence
to back his words. "Credible
intelligence sug gests that
terrorist outfits are investing in
stock markets through spurious
companies, setting up fictitious
businesses and laundering
money," Shinde said. He asked
Interpol to play a crucial role in
helping India to check this. "The
utmost importance of detecting
the sources of such finance
including the fake currency
variant, its conduits, modusoperandi
and stanching its flow
cannot be lost on us," Shinde has
In 2007, then NSA MK Narayanan had raised an alarm
on terror money in the stock
markets when he said at a
conference in Munich that there
were 'isolated incidents' of
terrorist outfits manipulating
the stock markets to raise funds.
"Stock exchanges in Mumbai
and Chennai have, on occasions,
reported that fictitious or
notional companies were
engaging in stock market
operations," Narayanan then
However, the finance ministry
denied this then. However, in
De c emb e r 2 0 0 7 , wh i l e
addressing the Rajya Sabha, then
f i n a n c e m i n i s t e r P
Chidambaram admitted that the
government was tracking at least
one case of suspected terror
money being laundered in the
stock market.
The conclusive stand on the
matter finally came in December
last year when the minister of state for finance, Namo Narain
Meena, told Parliament that at
least 10 cases of suspected
terror funding in stock markets
were indeed being probed and
steps were being taken to
prevent flow of terrorist funds
into stock markets.
"Financial Intelligence Unit-
India (FIU-IND) has reportedly
received Suspicious Transaction
R e p o r t s ( S T R s ) f r o m
intermediaries, which includes
intermediaries of stock market
such as stock brokers and asset
management companies.
Some such STRs have been
linked to money laundering and
terrorist financing. These cases
w e r e d i s s emi n a t e d t o
intelligence agencies for further
investigation," Meena said last
Five STRs suspected to be
linked to terrorist financing were
referred for probe in 2009-10,
four in 2010-11 and one in 2011-
12. Meena then added that Sebi registered intermediaries such as
Mutual Funds, Depository
Participants and Stock Brokers
follow the 'know your client'
guidelines laid down by Sebi
when customers are registered.
India is a member of Financial
Ac t i o n Ta s k Fo r c e , a n
i n t e r n a t i o n a l i n t e r -
governmental body for setting
standards to combat money
laundering and financing of
terrorism. FATF has issued 49
recommendations to prevent
the abuse of financial systems.
Terror funds routed via
Karachi Stock Exchange? 16
Nov 2012, The Times of India
(Mumbai edition),
New Delhi: Union home
minister Sushil Kumar Shinde’s
statement at a Interpol event
expressing concern over terror
funds routed to stock exchanges
was possibly made with the
Karachi Stock Exchange in
mind, where outfits like Jamaat- ud-Dawah (JuD), a Lashker-e-
Taiba (LeT) front, are said to
have parked their money.
Sources in the MHA said the
Union minister’s wor ries
stemmed from inputs regarding
the alleged vulnerability of the
Karachi Stock Exchange to
manipulation by terror outfits.
JuD remains a legal outfit in
Pakistan and claims charity,
social work and education
among its prime activities. Hafiz
Mohammad Saeed, the 26/11
mastermind, is chairman of the
JuD. Pakistan has refused to ban
JuD despite repeated requests
from India as well as other
nations, including the US, citing
its alleged terror links.
The funding for JuD comes
from donations, zakat and,
surprisingly, from state agencies
such as Punjab government.





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