By Rushdi Siddiqui, Special to Gulf News, Published: April 18, 2011
Benchmark to be bridge-builder for Islamic and exchange-traded funds, sukuks and for non-Islamic investors
Abdullah Ahmad Badawi (third from left), former prime minister of Malaysia, and Rushdi Siddiqui, global head of Islamic finance and OIC countries, Thomson Reuters, at the launch of Socially Acceptable Market Investments in Kuala Lumpur.
Dubai: The newly launched Socially Acceptable Market Investments (Sami) Halal Food Index has a market capitalisation in excess of $114 billion (Dh418 billion).
The world’s first Halal Food Index was unveiled at the opening of WHF 2011 by Tun Abdullah Ahmad Badawi, former Malaysian prime minister.
Experts say the index will be a bridge-builder for Islamic funds, exchange-traded funds and sukuks as well as for global non-Islamic investors interested in the emerging food sector. Here are some basic facts about the index and its role in the future of Islamic investing.
Where did the idea of Sami Halal food index come from?
The halal industry has traditionally been related to foods, ingredients, certification, etc. For Islamic finance, the halal industry has generally been viewed as the (1) ‘kebabs for lunch’ and (2) as a business model deemed too risky for Islamic corporate loans. But, when halal presented also as an asset class and about inward investments or even investment banking, it becomes an interesting conversation. The DNA for all investing is an appropriate index. The halal food industry needed a global halal food index. So, on April 4 the Sami Halal food index was launched.
What is Sami Index index all about?
The Sami index is about consumer non-cyclical companies involved in food processing, distribution, fishing, farming, etc. The companies in the index, at stage one, are from 15 Muslim countries, about 270 plus companies with market capitalisation of $115 billion. It made more sense to focus on companies from Muslim countries as it is easier to verify their products as halal in accordance with local standards.
What is the role of IdealRatings and World Halal Forum?
IdealRatings has been screening companies for Sharia adherence for a number of years and they understand the halal food company space equally well. They do research-based screening over the commonly used automated screening. Hence a deep fundamental understanding of companies. World Halal Forum, along with International Halal Integrity Alliance, has full understanding of the halal food process.
Please explain terms like ‘participation’ and ‘green chip’ used in the index.
There are two versions of the index, one without the Sharia screening, Sami Halal Food index, and one with the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), that is the Samil Halal Food Participation Index. The use of the term ‘green chip’ marks the beginning of the de-linking from conventional finance and its language, hence, it will not only convey the Islamic ‘blue-chip’ alternative, but also encourage Islamic investing to start considering the environment.
Why is an index for the Halal food industry important to Islamic investors?
At a surface level, it’s simply about halal food as an asset class. Muslims, as consumers, already invest in these companies by buying their halal products. Now they can be investors of such companies by purchasing shares in these companies directly or through funds. To those (Muslims) who have been saying investing in the stock market is gambling, investing in publicly listed halal food companies in Muslim countries is about inward investment.
What are the challenges faced by food companies in the index?
The major challenges include: (1) excessive weighting of Malaysia’s Sime Derby, we had to put a ceiling on its weighting to 20 per cent; (2) free float is small for many companies and (3) illiquidity for many companies. These are common issues when investing in emerging and frontier markets. However, the more important point is that these companies, including the small capitalised companies, are now in the world’s first Halal Food Index, hence, are on the radar screens of investors.
What are the expectations of the Index?
We expect investment products like mutual and exchange-traded funds, will be launched off of the index, hence, consumers become natural investors. A halal food fund may be easier to explain to the Muslim ‘woman and man on the street’ than Sharia compliant companies like Exxon Mobile, Pfizer or Procter & Gamble. As the index gathers traction over time in the marketplace, it will become a high-profile index, hence, an ideal marketing opportunity for investor relations department for companies in the index. It may even encourage privately held halal food companies to go public to be included in the index.
What does this index mean for Islamic finance?
The industry has been talking about authenticity, innovation, Sharia based funds etc, and the Sami Halal Food index may just be the model for these. It is about Muslim money staying in Muslim countries for growing and building companies that contribute to the real economy.
The writer is Global Head of Islamic Finance & OIC Countries, Thomson Reuters.