India's largest state-owned bank will launch an Islamic equity fund next month aimed primarily at the country's 170 million Muslims.

The Securities and Exchange Board of India recently allowed the government-owned State Bank of India and three mutual funds to launch Sharia funds.

An official said Wednesday that the bank was expecting to raise around 1 billion rupees ($16.4 million) initially.

Charging and receiving interest is considered usury and is not allowed under Islamic law known as Sharia. Sharia-compliant funds invest in companies that follow Islamic rules.

India's stock exchanges have between 600 and 700 companies that are Sharia-compliant.

India is only the second country outside the Islamic world where a state-owned bank is offering a Sharia-compliant fund. The U.K. issued sovereign Islamic bonds in June.