The Reserve Bank of India has permitted an NBFC in Kerala to run Sharia compliant finance in the country. Cheraman Financial Services, based in Kochi, plans to offer leasing and equity products under Islamic principles. With an estimated Muslim population of 177 million, India is the largest Muslim minority in the world, but banking rules do not permit to Sharia compliant financing, which forbids the payment of interest.
A company spokesman said “We propose to roll out the products by the end of August”, he did not elaborate on the design of the products.
Kerala’s industries minister P K Kunhalikutty and CFSL Chairman Mohammad Ali told the media that the firm would function as a non banking financial company with an authorised capital of Rs. 1,000 crore.
Earlier in May, the RBI was considering the possibility of allowing Islamic financial institutions to function as NBFC’s since Islamic Banks are not permitted under the Indian laws. RBI Governor, D Subbarao who will be vacating office this September said “ It (Islamic banking) is popular in many Islamic and non-Islamic countries. Some countries are actively promoting Islamic banking. We receive requests that RBI must allow Islamic banking in the country he said”.
Shariq Nisar, director of research and operations at Mumbai based Taqwaa Advisory and Shariah Investment Solutions said “ I don’t think there would be a rush for NBFC’s applications. RBI’s attitude towards the Sharia compliance concept is yet to be tested”. Running a Sharia compliant financial system under Indian regulations is still difficult and other firms are likely to stay on the sidelines pending the success of existing schemes before deciding to join in, he added.
Last year, the RBI had directed Kochi based Alternative Investments and Credits Limited (AICL) to stop its non interest NBFC business, a decade after the firm had established its operations in India, this prompted the company to challenge the decision in Indian courts.
Senior BJP leader Subramaniam Swamy who recently merged the last faction of Janata Party with the principal opposition party, had challenged the decision by RBI to grant permission for NBFCs for Sharia compliant banking by filing a writ petition in the Kerala High Court, he had termed the proposal of Kerala Government to grant permission to NBFC for Islamic banking as “outlandish and outmoded” proposal. But a bench consisting of Chief Justice J Chelameshwar and Justice P R Ramachandra Menon dismissed the petitions filed by Swamy and others, clearing the legal wrangles and paving the way for a Sharia compliant banking in India.
RBI gives nod to NBFC to launch Islamic Finance Operations i