The jury is still out on the legality of state-funded Islamic banking but Kerala-based Al Barakah Financial Services sees no reason to be diffident. “We’re keeping our fingers crossed,” says Kerala Industries principal secretary T. Balakrishan a few days after the Kerala High Court said in an interim order that it would not bar an Islamic bank if procedures and permissions were adhered to. Crucially, it added, the government or its enterprises can’t associate with such an effort.
Al Barakah is planned as a non-banking finance company (NBFC) running on a profit-loss sharing model, thereby avoiding interest-based business. The Kerala government had wanted to partner in the venture, which will fund the state’s infrastructure projects with an initial corpus of Rs 500 crore. But the Shariah-compliant financial venture’s plan to tap rich nrks—an estimated 2 million are concentrated in the Gulf countries—from the Muslim community is now in doubt.
Janata Party chairman Dr Subramanian Swamy, who challenged the Kerala government decision to pick up 11 per cent stake in Al Barakah, told Outlook that he was sure the RBI would not allow it to function as an nbfc because it discriminated on the basis of religion. “Let alone the state getting the nod to participate, even Al Barakah will be barred because its approach is discriminatory. The next stage of registering as an nbfc with the RBI is as good as lost,” says Swamy.
The government now maintains that it’s only a promoter and not a stakeholder in the venture. The court will hear the RBI and the Centre’s views on June 3, when the matter will be finally disposed of.
Whatever be the verdict, K.K. Ali, the CEO of Alternative Investments and Credits Ltd—an nbfc that runs on Islamic principles—says all the energy is being misspent selling the concept of Islamic banking. “It’s better not to waste time on fighting over nomenclatures,” is his advice. That’s why there are some 400 micro-credit ventures, functioning mostly in north Kerala, quietly dispensing interest-free loans.
