JEDDAH: A court ruling has opened the door for interest-free financial institutions to thrive in India with government support, according to economic experts.
A division bench of the Kerala High Court dismissed writ petitions filed against the government’s sanction for starting a non-banking finance company by the Kerala State Industrial Development Corporation (KSIDC), based on Islamic principles.
Speaking to Arab News, H. Abdur Raqeeb, general secretary of the Indian Center for Islamic Finance, said the introduction of an Islamic financial system in India would help the country receive much-needed funds for its infrastructure projects from potential investors from Gulf countries.
“India requires $500 billion for new expansion projects in vital sectors in the next 10 years,” he said over telephone from the south Indian city of Chennai.
The High Court bench headed by Chief Justice J. Chalameshwar gave the go-ahead to Al-Baraka Financial Services, while dismissing petitions filed by Janata Party leader Subramanian Swamy and others.
Al-Baraka’s 14 promoters have contributed 40.2 million Indian rupees toward the company’s capital. Prominent Gulf-based businessman P. Mohammed Ali is the chairman of the company’s 17-member board of directors, while C.K. Menon, another businessman, is vice chairman. The state-run KSIDC will have an 11 percent stake in the firm.
Raqeeb, who has been spearheading a campaign to promote interest-free banking in India, welcomed the court’s decision. “This is good news. It will contribute to boosting India’s social and economic development,” he added. Interest-free microfinance will help India’s poor and lower-income groups.
A member of the company’s board of directors, meanwhile, said the board would soon meet to discuss the beginning of operations. “The basic principle of our company is that it would not charge any interest,” said E.M. Najeeb, another prominent businessman.
“There are many people who are willing to put in their money without interest. We will pool this money and invest in infrastructure projects,” he added.
The court decision comes after Prime Minister Manmohan Singh had asked the Reserve Bank of India to study the prospects of introducing an interest-free banking system in the country. “There have been from time to time demands for experimenting with Islamic banking in the country,” Singh said in Malaysia during an official visit late last year.
“I would certainly recommend to the Reserve Bank of India, which is looking into this question, to look at what is happening in Malaysia in this regard.”
There are nearly 500 Islamic finance institutions worldwide, managing $1 trillion in assets.
Indian Muslims, who number more than 160 million, have been demanding permission to run interest-free banking services for quite some time.
In Kerala, Muslims form the second largest community and account for close to 24 percent of the 32 million population. Out of 1.85 million non-resident Keralites in 2007, nearly 50 percent were Muslims and accounted for half the remittances into the state.