Halal investment, anyone?

Zafar Sareshwala is planning to channelise Muslim funds into the stock markets.

Twenty-six employees of Parsoli Corporation "" a firm offering broking and portfolio management services "" at Shalimar Complex, Paldi, Ahmedabad, had to run for their lives in February 2002 when riots broke out in that city.

By the time they "" and peace "" returned to the locality some eight months later, the company's broking card with the National Stock Exchange had been suspended and bank guarantees invoked as it had positions taken ahead of the budget that could not be squared off.

The choice before Zafar Sareshwala, director and the brain behind Parsoli Corporation, was either to give up completely or start his business on a new model.

He sold his property worth Rs 55 lakh, revived the NSE card, renewed the bank guarantees and started the brokerage business with a new focus "" Muslim wealth.

"Have you ever seen a brokerage in a Muslim area? There is not even one at Ahmedabad's Kalupura or Mumbai's Mohammad Ali Road. The Muslim population has enough wealth but there is no avenue for investment. I decided to channelise a fraction of that into the stock market," says Sareshwala.

He began by studying the institution of zakat, the most important pillar of the Islamic economic system. Muslims are required to distribute a percentage of their worth (2.5 per cent) towards charity every year.

The objective is to ensure a safety net for the poorer section of the Muslim population. The collective wealth of 1 per cent population of the Middle East lying in Western banks is conservatively estimated to be over $800 billion.

Sareshwala found there are 2 crore zakat-paying Muslims in India, 8,000 of them in Ahmedabad. About 100 zakat institutions collect over Rs 100 crore from them every year.

Sareshwala contacted the zakat collectors (called Safirs) and got the addresses of the zakat paying Muslims. Next, he sent direct mails to these 8,000 zakat-paying Muslims, explaining why they should invest in markets. By October 2003, 300 of them responded positively to his proposal. The number has gone up to 550 now.

To convince them, Sareshwala worked out an investment model that does not violate Shariah. For instance, Shariah does not allow investment in companies which deal with banking and insurance, manufacturing, selling or offering liquor or pork, or involved in gambling, amusement parks, entertainment etc. Then, there were financial parameters like debt:equity ratio or market cap:debt ratio.

First, Parsoli looked at 5,000 stocks traded on the Indian market. Close to 2,500 passed the test of profile of business, but after applying the financial ratio filter, 215 stocks of telecom, IT, steel, cement, agri-machinery, diamonds etc qualified for investment.

At the final stage, Parsoli developed an index of 40 extra liquid stocks of Group A as halal stocks where Muslims can invest. The list includes ONGC, Infosys, Hero Honda, Ranbaxy and Neyveli Lignite.

"We are not targeting the 14 crore Muslims of the country. Our target is the 2 crore zakat payers, to hand-hold them to the stock market following the rules of the Shariah. We are opening offices in Gujarat, Mumbai, Chennai, Kanpur, Bangalore and Calicut where there is a concentration of rich Muslims," Sareshwala says.

Parsoli Corporation is a listed entity. It is planning to enter the capital market with an equity offering again to raise funds to take care of its expansion plans.

Sareshwala wants to expand his business and enter the derivatives and futures and options segments of the market. They are perceived to be un-Islamic but he is convinced that hedging is allowed in religion and to that extent he has got fatwas from the Shariah scholars.

Armed with that, Sareshwala is approaching his clients. He is also planning a foray into insurance products, five of which "" life and medical insurance "" are compatible with the Islamic religion.

"Post 9/11, there has been a flight of over $200 billion capital from the US. The Middle East Muslims are looking for a safe haven to park their money."

Indian markets and his brokerage offer them that opportunity. To cash in on the global Muslim wealth, he has already set up a base in UK "" Parsoli (UK) Ltd "" by taking over a local outfit.

"We are positioning ourselves on the line of IFAs (independent financial advisors) for the entire Muslim world. We are not reinventing the wheel. There is Muslim money in the system. We are merely finding ways to channelise that money," he says.

Does that mean that he caters only to the Muslim population? Sareshwala says he has Hindu clients too in the ratio of 3:10 but the predominant focus is the Muslims.

Nor is he scared of the sophisticated, technology savvy brokerages and mutual funds operating in the market.

"In the UK, no Muslim goes to Tesco to buy halal meat. It's always Mr Khan's Butchers. Similarly, when it comes to investment, the retail clients will trust my kind of endeavours and not the big houses," he says. Time "" and Allah "" will tell.