Joe A Scaria,ET Bureau,Feb 4, 2011, 06.32pm IST
THIRUVANANTHAPURAM: When the Kerala High Court on Thursday approved the concept of Islamic non-banking finance company operations, the cheers were apparently far more in the Persian Gulf countries than at home. Gulf-based NRIs are learnt to be willing to bring in well over Rs 10,000 crore for infrastructure projects in the state, on Shariah principles.
Their dreams are poised for realization, with the high court dismissing writ petitions filed by Subramaniam Swamy and RV Babu against the move of the Kerala State Industrial Development Corporation to take an 11% stake in Al Barakah Financial Services, a venture that operates on Shariah principles.
"There is enormous interest among Gulf-based NRIs in investing in Kerala through the Shariah route. There has been an offer to bring in Rs 10,000 crore from Oman alone, through the initiative of Muscat-based Keralite businessman, P Mohamed Ali", Kerala industry minister Elamaram Kareem said here.
"The interest in the proposed NBFC is so strong, that immediately after it was floated a large corporate with interest in multiple domains sought 74% stake in it, and the Doha Bank expressed desire to pick up a 46% equity", says Kareem. Al Barakah has an authorized capital of Rs 1,000 crore.
Meanwhile, the debate over the permissibility of a bank working under Islamic principles has been given a new twist, with the explanation that Al Barakah plans to launch an NBFC in association with KSIDC, and not a bank.
RBI governor D Subbarao had said in Kerala last year that the current rules of the Banking Regulation Act did not permit Islamic banking in the country. Kerala finance minister TM Thomas Isaac clarified that the RBI governor had in fact been asked a "loaded question", as to whether an Islamic bank was allowed. "He said that was not possible, but what is in question here is an NBFC, and not a bank, working under the Shariah concept", Isaac said.
Industry minister Kareem clarified that Shariah-complaint NBFCs were not uncommon in Kerala, pointing out the case of Alternate Investments and Credits, a Kochi-based NBFC that works on Shariah principles.
The Al Barakah promoters' team has P Mohamed Ali as chairman, CK Menon and MA Yusuf Ali as vice chairmen, and PNC Menon (Shobha group), Siddique Ahmed ( Saudi Arabia), EM Najeeb (Air Travel Enterprises), Abdul Wahab, PA Ibrahim Haji, and PK Ahmed, and two representatives of the KSIDC, namely T Balakrishnan and VKC Mohammed Koya, as the other members. The final board will be constituted after investors pick up stakes in the company.
Al Barakah board member EM Najeeb told ET that the company will work on the principle of not receiving or paying interest, with the investors sharing profits generated from the projects that it funds.
Finance minister Isaac said KSIDC had consulted Ernst & Young and the latter had recommended an Islamic financial institution as an alternative source of financing.