Green Light for Shariah Finance

A state-promoted finance company based on Islamic principles finally gets a go-ahead from the RBI

KOCHI ~ After years of legal tangles and political negotiations, a finance company based on the principles of Shariah law has finally got a go-ahead from the Reserve Bank of India. Cheraman Financial Services Ltd (CFSL), floated by the government undertaking Kerala State Industrial Development Corporation, will be the first of its kind in India.

“It is primarily an equity finance company with a share capital of Rs 1,000 crore. KSIDC will hold 11 per cent of it and the rest would come from the NRIs of Kerala,” says Mohemmed Haneesh, an IAS officer who has been deputed as CFSL’s managing director. It will initially invest in equities and later expand to development projects, including infrastructure development and manufacturing. It will keep away from sectors taboo in Islam like liquor, tobacco, gambling and pornography.

Islam prohibits usury and, strictly interpreted, all kinds of interest charges and direct money-making off money itself. When the idea of CFSL was first mooted by Kerala’s previous LDF government, right-wing groups like the Hindu Aikya Vedi alleged that this was ‘Islamisation’ of the banking sector. Subramaniam Swami, a BJP leader now (and Janata Party chief then), had challenged the proposal at the Kerala High Court, alleging that it was undue promotion of a specific religion by the state government and a violation of secularism guaranteed by the Constitution. The court stayed the company’s launch in 2010 but then vacated it. It also dismissed Swamy’s plea, ruling that it would do no harm to India’s secular principles.

An Islamic bank per se is still a no-no in India. “Here, Islamic banking is not possible unless the Banking Regulations Act is amended,” says Haneesh, “RBI regulations are based on the principle of interest.” So CFSL is classified as a non-banking financial company. The CPM’s Dr TM Thomas Issac, finance minister in the previous LDF government, says the NBFC will attract both investors and customers . “There are a large number of Muslim NRIs who do not want to deal with interest because it is unIslamic,” he says.