KOCHI: Kerala is showing the way for other states in India in implementing the Islamic finance. Kochi-based Cheraman Financial Services Ltd (CFSL), the only NBFC in India operating on Islamic finance principles, is getting its act together after the state budget last week entrusted it with `250 crore modernisation of the Kerala State Drugs and Pharmaceuticals (KSDP).
Islamic finance, a financial system that operates according to Islamic law (Sharia), features banks, capital markets, fund managers, investment firms and the government hopes this would open up investment opportunity to Muslims who constitute over a quarter of the population of the state.
CFSL was established with equity participation of the government-owned Kerala State Industrial Development Corporation (KSIDC) and private investors, mostly Gulf-based NRIs such as M A Yusuf Ali (Lulu Group), P Mohamed Ali (Galfar), PNC Menon (Sobha Developers), C K Menon (Behzad Corporation), P V Abdul Wahab MP among others.
APM Mohammed Hanish, managing director of CFSL, said the company was operating as per the RBI guidelines as a non-deposit taking NBFC. “Cheraman takes fund as shares from investors mainly from NRKs who do not want to put in their money in conventional banks,” he said. The contours of the plan to modernise KSDP using CFSL have not been revealed. Islamic finance’s entry in Kerala has not been smooth. Kochi-based Alternative Investments and Credits Ltd (AICL), which started operations in 2000, was the first NBFC in the country working on Islamic finance principles. But the RBI cancelled the licence of AICL on April 23, 2012 and the litigation is pending with Bombay HC.
“During PM Narendra Modi’s visit to Saudi Arabia there were a wide range of discussions on business and investment in the background of the Kingdom’s $2 trillion Public Investment Fund along with similar huge funds available in Qatar, Bahrain, Kuwait and Dubai. But there is no NBFC, except Cheraman Financial, which is working on Islamic principles. AICL was operating on this principles but it was restricted by RBI and a case is pending in Mumbai HC against RBI,” said H Abdur Raqeeb, convener, National Committee on Islamic Banking and general secretary, Indian Centre for Islamic Finance.
He said SBI Mutual Fund’s Shariah Mutual Fund worth `100 crore, deferred a day before its launch on November 2014, was the earlier experiment with Islamic finance in the country.The RBI-appointed Deepak Mohanty Committee recommended that commercial banks may be enabled to open specialised interest-free windows with simple products like demand deposits, agency and participation securities.
The concept of Islamic banking once again pops up in the country with the Islamic Co-operation for Development of Private Sector, a subsidiary of Islamic Development Bank, Jeddah, starting discussions with RBI to start an NBFC with a capital of `200 cr in Gujarat to help SME sector.