india

Updated: Jan 09, 2014 01:20 IST

The UPA government is considering rolling out a national mutual fund based on Islamic finance principles — a globally fast-growing alternative banking sector — in a move expected to attract investment from Muslim households as well as big investors.

The plan is also part of a series of new measures addressed for minorities ahead of the 2014 general election, being pushed by minority affairs minister K Rahman Khan.

The larger plan is to use the funds, which will be floated by the State Bank of India, to finance minority welfare schemes by also reinvesting earnings from Wakf, or Islamic endowments of charity, usually in the form of prime real estate.

“There is a great need for investment. The capital raised would be used to fund minority welfare,” Rahman Khan, who pioneered the concept, told HT.

Islamic banks aren’t allowed to charge usurious interest, prohibited in Islam and the Old Testament. So, the investments are treated on the basis of the performance of underlying assets, rather than as interest-bearing loans.

According to Ernst and Young, Islamic banking assets, tapped by major bankers from HSBC to Stanchart, were poised to touch $1.8 trillion (`112 lakh crore) globally in 2013.

Khan’s ministry has asked the SBI to prepare a feasibility report. The bank sent a team to Malaysia, which runs a similar successful model. The ministry is also consulting the Reserve Bank of India. The matter will then be referred to a group of ministers (GoM).

The fund will also be utilised to finance Haj, the Muslim pilgrimage to Mecca. This would enable the government to stop subsidising the pilgrimage, although it has already begun tapering the subsidy.