By Shafeeq Hudawi, Twocircles.net
Although Islamic banking in India has been discussed at length, the truth remains that despite a huge potential market, the concept has remained at a nascent stage. However, if any state seems poised to gain from the recent developments in this area, it will be Kerala. With almost one-fourth of the state’s population being Muslim, the state is a top destination for Islamic banking. This, along with induction of Dr Thomas Issac, who has been a strong advocate of the idea as Kerala Finance Minister coupled with RBI’s recent moves in favour of the alternative banking are strong indicators that Islamic banking is likely to get a boost in the state.
Issac, speaking at a seminar hosted by Markazu Ssaqafathi Ssunniyya in Kozhikode on August 19, said that his government would take up measures to implement Islamic banking in the state. “Being interest less, this mode of banking is receiving accolades across the globe. It’s high time we grab the potential of Islamic finance,” the finance minister said.
More importantly, the Minister has also taken the first steps in this regard. In his first budget, Issac entrusted Kochi-based Cheraman Financial Service Limited (CFSL) with Rs. 250 crore modernisation of the Kerala State Drugs and Pharmaceuticals (KSDP). CFSL, the only Non Banking Financial Corporation (NBFC) in India operating on Islamic finance principles, will modernise KSDP after collecting funds through Islamic finance mode.
Islamic finance is a financial system that operates according to Islamic law (Sharia) and features banks, capital markets, fund managers and investment firms. An Islamic bank is a financial institution whose status, rules and procedures show commitment to the principle of Shariah and to the banning of the receipt and payment of interest on any of its operations.
“Though practical problems, mainly raising fund from investors, are there, this move will help bring a boost for Islamic banking in Kerala,” said CFSL managing director APM Mohammed Hanish. CFSL is taking fund from investors, who do not want to put in their money in conventional banks.
“The induction of Thomas Isaac has brought cheers to the advocates of Islamic financing. CFSL was conceived by Thomas Isaac in 2011 during the previous LDF government’ tenure,” said Syed Ramadan, a lecturer of economics at the Kodancheri Government College.
As of now, no interest-free banks are allowed to function in India. In 2013, the Ministry of Finance had requested the RBI to give its opinion on the feasibility of introducing Islamic Banking in India. Accordingly, an Inter-Departmental Group (IDG) on Islamic Banking was constituted in the RBI, and the report prepared by the IDG was submitted before the government in February 2016.
An important international development has also brought cheer to the promoters of Islamic banking in india. During his visit to Saudi Arabia, Prime Minister Narendra held discussions with Saudi on business and investment through Islamic finance in India. The Islamic Co-operation for Development of Private Sector, a subsidiary of Islamic Development Bank, Jeddah has started discussions with RBI to start an NBFC with a capital of Rs. 200 crore in Gujarat to help small and medium sector enterprise in the country. “This also gives hopes for CFSL, the lone Sharia-compliant NBFC in the country. Besides, the RBI is considering the prospects of introducing a few products similar to conventional banking products like lease finance and Murabaha (in which an intermediary buys property with free and clear title). Infrastructure development fund and venture capital are the products that would be floated under the Islamic arm of conventional banks,” said Syed Ramadan. The country’s largest bank, the State Bank of India, has already introduced interest-free Sharia Mutual Fund.
through the Islamic window of conventional banks if necessary support is given by the government,” Syed Ramadan said.
Meanwhile, the Kochi-based Alternative Investments and Credits Ltd (AICL), is fighting a legal battle in the Mumbai High Court after its license was cancelled by RBI in 2012. “AICL can take advantage of RBI’s move in favour of Islamic finance and bring boost to the alternative banking in the state,” he said.
Experts point out that the Muslim organisations in the state will be in favour to the new culture of banking as conventional banking is perceived as non Islamic.
“Some of the entrepreneurs and businessmen, belonging to the community, are reluctant to be part of the conventional banking while for some of them conventional banking is the least preference. The change will bring them cheers,” said Jafar Hudawi Kolathur of Darul Huda Islamic University.
According to him, some of the Muslim organisations like Jam’aat-e-Islami and Samastha Kerala Sunni Students Federation (SKSSF) have started efforts to start Sharia-compliant financial institutions. They have formed exclusive wings of experts and held discussions on starting financial enterprises.