New Delhi: Kerala’s Left Democratic Front (LDF) government, composed of political parties that are avowedly agnostic, is promoting a financial institution that will run on Islamic principles and start operations with at least Rs500 crore of capital.
Kerala State Industrial Development Corp. Ltd, a state government arm, will take an 11% stake in the institution and the balance will be held by individuals, primarily Keralites based in West Asia.
In support: Kerala’s minister for finance Thomas Isaac.
The institution, to be registered as a non-deposit taking, non-banking financial company because Reserve Bank of India rules do not allow an Islamic bank to be licensed as a commercial bank, will act like a venture capital firm and fund infrastructure projects.
Kerala has been trying to boost its deficient infrastructure to attract investment and lift economic growth. A high-speed train link between northern and southern Kerala is one of several ambitious projects that has been proposed by the LDF.
“The exercise will be sponsored by the Kerala government and the state can utilize the funds for its infrastructure development,” Kerala’s finance minister Thomas Isaac said. “Once it is established, we can use the money to fund the proposed north-south bullet train in the state.”
The Kerala government had approached Delhi Metro chief E. Sreedharan to prepare a project report on the Kannur-Thiruvananthapuram bullet train. The finance ministry had made a provision of Rs20 crore for the feasibility study in the last budget.
Islamic finance, based on the principles of Shariah, prohibits the payment or receipt of interest and investment in businesses that offer products or services that do not confirm with Muslim religious beliefs, and stresses profit sharing.
Audit and consultancy firm Ernst and Young had been asked to prepare a project report on the proposed Islamic financial institution. Al-Baraka and Al-Salama are two of the names thought up for the entity.
“The Islamic financial institution, which is going to work within the boundaries of Shariah law, will be a platform for the state government’s investment initiative in infrastructure,” said P.V. Abdul Wahab, a Rajya Sabha member from Kerala. “The paid-up capital can go up to Rs1,000 crore.”
“The money will not be used for investing in any business which is prohibited in Islamic law such as alcohol, tobacco and some entertainment businesses,” said Wahab, who represents the Indian Union Muslim League. He is one of the promoters of the venture in a personal capacity.
Finance minister Isaac, a leader of the Communist Party of India (Marxist), or CPM, which heads the Kerala government, is confident there wouldn’t be any problem in attracting funds for the venture, given the strong presence of Keralites in the Gulf. The Gulf region is the most preferred destination of Keralites looking for jobs abroad.
Isaac sees no conflict between the secular, non-religious platform of the CPM and its Left partners and the Kerala government’s promotion of a financial institution that would be based on religious beliefs.
“The government decided to support it as there is a set of people in a particular religious community who do not want to dabble with certain activities, which they think are morally wrong, but we want to tap the resources available,” the minister said.
“This does not mean that CPM is following Shariah law,” he added. “There is nothing wrong in it.”
Muslims make up around 25% of the population of Kerala, which was 31.8 million according to the 2001 Census.
Vinoj Abraham, a lecturer at the Centre for Development Studies (CDS) in the state capital Thiruvananthapuram, said the move to introduce Islamic finance is pragmatic, against the backdrop of the global economic downturn that has forced the return of Indian workers from many parts of West Asia.
“This will help to channelize the resources coming from and through the Gulf countries,” he said.
Gulf-based Keralite businessmen P. Mohammed Ali of the Galfar Group (Oman), C.K. Menon of the Behzad Group (Qatar), M.A. Yusuf Ali of Lulu Supermarket (United Arab Emirates) and Azad Moopen of Dr Moopen’s Group (Dubai) have already joined as initial promoters. Mohammed Ali is the chairman of the board.
According to a study conducted by CDS, foreign remittances to Kerala surged 135% during 2003-08.
The report, Decade of Kerala’s Gulf Connection, Migration Monitoring Study, 2008, said foreign remittances to the state rose from Rs1.84 trillion in 2003 to Rs4.33 trillion in 2008.