Pioneering Shariah-compliant Small Cases in India
Background
SenSage Financial Services Pvt. Ltd. founded in 2006 is a SEBI Registered Investment Advisor based in Hyderabad, and is engaged in Investment Advisory and Wealth/Portfolio Management Services. M.S. Shabbir, its founder and managing director has over four decades of professional experience having worked across the financial services industry both in India and overseas.
Since its inception, the firm has helped its clientele achieve their financial goals through a bouquet of financial products and investment solutions, which included Equities, Mutual Funds, Exchange Traded Funds (ETFs), Gold, Bonds among others. The firm also developed tools like corpus calculators for planning retirement, children’s education and marriage, buying a house among others.
In October 2020, the firm decided to change its business model and only offer those investment solutions, which meet its religious beliefs. However, with limited number of Shariah-compliant investment options (direct equity investments and two mutual fund schemes), the firm chose to create a portfolio of small cases to offer Shariah-compliant investment solutions. These small cases includes portfolios of small to large-cap stocks both standalone and diversified, sector-specific small cases, ETFs and a combination of these.
Small Cases are investment products created by SEBI registered analysts or RIAs and each small case can reflect an objective, theme or investment strategy. Small cases are miniature versions of Portfolio Management Services (PMS) and can be sold as a ready or customized portfolio to suit individual requirements.
Challenge
- How do an investor trust whether these small cases created by SenSage Financial Services meet the Shariah principles for investments?
- Is the income of SenSage Financial Services truly in line with Shariah principles? If not, then what should it do?
Solution
The team of ShariahCap Advisors realized that SenSage Financial Services could be a trailblazer, and providing solution for this will have far-reaching consequences for the ethical finance industry. However, it had to tread cautiously. Armed with its research and experience, ShariahCap laid down rules and conditions, which these small cases should adhered to to be certified as Shariah-compliant. These guidelines have to be in line with globally accepted Shariah norms. The aim was not just to certify the existing small cases created by SenSage Financial Services, but at the same time not to hinder the creativity and/or discourage the creation of similar small cases in the future. Another advantage of this move was that SenSage was able to reduce its turnaround time in creating these small cases as it reduced the time spent in going back and forth in evaluation.
As for the income of SenSage, the Shariah scholars observed that since the time the company changed its business model and focused on only advising Shariah-compliant investment options, the income which it will earn through this (whether it is PMS fees or commission from ethical mutual funds or brokerage through direct equity investments) will be pure (halal). But the fees/commission/brokerage which it will receive for past investments of its clients in non-Shariah-compliant investments, it should purge the same for a charity / social cause which is not directly related/connected to Sensage’s business goals. This was done as a matter of extreme caution.
Outcome
Today, SenSage Financial Services hosts nearly a dozen small cases, which are in line with the Shariah principles thus opened a new window of opportunity for retail as well HNI investors seeking Shariah-compliant investment solutions. The small cases provide an additional opportunity for more Shariah conscious investors to participate in financial markets who have hitherto stayed away due to limited products/investment options.
Disclaimer: ShariahCap Advisors does not guarantee financial return. These small cases are linked to market performance. Investors are advised to undertake their own risk assessment and performance evaluation before making any investment decision.