Islamic banking taking roots in India

The Kerala government has taken revolutionary step launching the first ever interest-free Islamic banking institution in India. The Al-Baraka came into action once the Kerala High Court dismissed a couple of writ petitions which challenged the setting up of Islamic financial institution in a secular country like India.
The Islamic Bank is promoted by Kerala State Industrial Development Corporation (KSIDC) which has 11 percent stake in Al-Baraka Financial Services. The financial institution which operates on Islamic principles was held back as former union minister Subramanyam swami filed PIL challenging the move.

A division bench comprising Chief Justice J Chalameswar and Justice P R Ramachandra Menon dismissed the petitions claiming that the government proposed institution can follow the financial laws of the country as well as sharia rules.

The first of its like institution originally planned as government undertaking failed to get Reserve Bank clearance as well as court rulings. An internal working group of RBI whose report is yet be public held that such a form of banking is not possible given present regulations.

However the system had got a shot on the arm when Prime Minister Manmohan Singh asked the Reserve Bank of India to look into the prospects of introducing an interest-free banking system in the country. "There have been demands for experimenting with Islamic banking in the country," Singh said.

And now the court cleared the way for setting up the financial system as a state supported private company. Al –Baraka is proposed to work as an interest free banking system in which a sharia board will account the power to decide on the mode of investments.

The company will invest the money only in Shariah compliant projects such as development and infrastructure projects, according to the promoters. The government plans to use the Al-Baraka resources for major projects like Southwest rail corridor and Coimbatore-Kochi corridor.

14 promoters of Al-Baraka have already contributed 40.2 million Indian rupees to the interest free financial institution which aims to mobilize around 400 billion rupees in total. The 17 member board of the directors is chaired by P. Mohammed Ali, veteran GCC based business man, and C.K. Menon as vice chairman.

The government initiative is widely appreciated by people of the state mainly by Muslims who account for close to 24 percent of the 32 million population. It has warmly welcomed by nonresident Keralites in which Muslims play 50% role in umbers as well as in the total remittance into the state.

However, a few people believe that its’ a government agenda to tap the huge amount of money from expatriate Muslims who are keeping away from interest-smitten financial systems. Political opposition has been blaming the CPI (M) led left government for their minority appeasement move.

But state government is firm on its stance projecting the example of Britain having an Islamic bank with seven branches where Muslims account for only 3% of population. They also claim that there are nearly 500 Islamic finance institutions worldwide, managing $1 trillion in assets.

The promoters of Al-Baraka proposed that Indian banking regulations would be changed to accommodate Islamic banking services. It would benefit the largest minority of the country as well as those who wish for interest-free banking services.