Kerala to recast Shariah-compliant firm

Thiruvananthapuram: Faced with the criticism that the State Government is “favouring” a particular religion by initiating a Shariah-compliant investment firm, the ruling Left Front Government in Kerala has decided to recast it as an interest-free financial venture.

Industry Minister Elamaram Kareem said in a written reply to Muslim League member C T Ahmed Ali in the State Assembly yesterday that the proposed financial venture had already received Rs42m as contributions from 14 promoters.

The plan was to raise funds from individuals, non-resident Indians, foreign investors and foreign institutional investors (FIIs). Individuals would be eligible for up to 9 percent cent stake and foreign investor 24 percent. Oman-based businessman P Mohammed Ali had chaired the first meeting of the 17-member board of the company a few months back. Doha-based Behzad group Chairman C K Menon is the board vice-chairman. Barring three government officials, 12 directors belong to the Muslim community.

Al Barakah Financial Services Limited was conceived as India’s premier financial institution dealing in Shariah-compliant financial products. “The way we see it it’s another form of venture capital,” Finance Minister Thomas Isaac had said in an interview. “We need long-gestation funds to build airports, high-speed trains and expressways. Islamic finance promises unexplored potential in that context”.

Isaac had said Al Barakah Financial Services Ltd would sell rupee-denominated bonds and create investment funds that complied with Shariah law’s ban on interest. The venture would tap Indian Muslims and money sent home by workers living in Gulf countries.

However, Kerala High Court stayed the proposal for the investment company on a petition filed by former Federal Minister and Janata Party leader Subramanian Swamy. Swamy contended that the government had sanctioned the registration of an Islamic Finance company by Kerala State Industrial Development Corporation (KSIDC) to provide financial services in accordance with Shariah law.

Swamy pointed out that Shariah was the Muslim Personal Law and the functioning of financial company set up with government participation in compliance with Shariah norms was an instance of the state government favoring a particular religion.

“KSIDC is a government organisation and it is clear that it would act under the overall control of the state government. KSIDC has invited applications to fill the top post in the proposed company. The CEO of the proposed Islamic financial company is required to report to the Shariah Advisory Board. This makes it clear that the Board will have some measure of supervision over the proposed company,’’ he said.

Kerala government had set its eyes the Rs370bn NRI deposits with commercial banks in the State, after Ernst & Young, in its feasibility study report, proposed the formation of a non-banking financial company (NBFC) with more funding from Federal and state government agencies.

The firm, through its dedicated arm, would procure capital equipment or property and lease it out under installment plans to clients. The company would be entitled to a share in profits through the mechanism of rent, fixed or variable.

Shariah prohibits investments in companies dealing in alcohol, conventional financial services (banking and insurance), entertainment (cinemas and hotels), tobacco, pork, defence and weapons.

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