Swamy drags Marxists’ Islamic bank into court

After the serious setback caused by the economic bubble-burst in Dubai, the neo-liberal Marxists’ plan for setting up an Islamic bank in the State based on Sharia financial principles is now facing legal hurdles with former Union law minister and Janata Party leader Subramanian Swamy seeking the Kerala High Court’s directive for abrogation of Governmental permission for the project.

Swamy has sought cancellation of the order issued by the Secretary, Department of Industries, according permission for setting up an Islamic bank under the guidance of the Kerala State Industrial Development Corporation (KSIDC). The secretary had issued the order in this regard on October 14. Swamy says that an Islamic bank based on Sharia principles is equivalent to giving prominence to a particular religion which is against the spirit of the Constitution.

A division bench of the High Court comprising Chief Justice SR Bannurmath and Justice AK Basheer on Tuesday posted the case to January 5 to give time to Swamy for submitting more evidences to prove that KSIDC was part of the State Government. Swamy had submitted the petition on Monday.

The former minister says that an interest-free system of banking is against the rules of the Reserve Bank’s financial rules. According to him, running an interest-free bank, which amounted to encouraging communal spirit, is not at all appropriate for a CPI(M)-led Government.

Neo-liberal Marxist and State Industries Minister Elamaram Kareem, who along with Finance Minister TM Thomas Isaac was the one who conceived the idea of starting an Islamic bank, had said in October that the first Sharia-based Islamic banking institution in the country would start functioning in Kerala next year with thirty branches. The idea for the bank was made public originally by Isaac in the Assembly earlier this year.

The idea was that the institution would mainly target non-resident Indians who could invest in Kerala. The paid-up capital of the institution was to be Rs 1,000 crore, raised in three stages. Eighty-nine percent stake in the institution was to be held by private investors while the remaining 11 percent shares would be with the KSIDC.

The non-banking institution working on the basis of Islamic principles would not earn or give out interest on deposits and also would not indulge in speculative trade and other “unethical” (Haram) practices. The Government had entrusted the KSIDC with the task of constituting the institution and also had approved the report of a feasibility study conducted by consultants Ernst & Young. A Sharia board was to be formed to decide on what kind of investments the institution could attract.

A core committee of promoters was formed in last July after a meeting of prospective depositors, held in the presence of Elamaram Kareem. The committee had already met three times. The plan was to build an investment base by receiving deposits from NRIs, for which the returns would come in the form of shares of profit out of business carried out with the deposits.

The feasibility study had found that a Sharia-principle bank was practical and viable in Kerala. The CPI(M)-led Government had been toying with the idea of starting an “Islamic bank” ever since it came to power on May 18, 2006. The objective was to reallocate the deposits in the “bank” for industrial purposes. There was also a plan to encourage the depositors to become project partners.

The focus of search for depositors and the remaining promoters was on the Malayalees working and doing business abroad, mostly the Gulf countries. According to financial experts, the concept had the potential to be a big hit in a place like Kerala. Almost 50 percent of the 25-lakh Keralites in the Gulf were Muslims. Also, Muslims constituted 24 percent of Kerala’s 3.25-crore population.

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