Kerala must tap Islamic funds for infrastructure development, say experts

VINSON KURIAN

Kerala could become a role model of tapping Islamic finance market to raise badly needed funds for infrastructure development, according to experts.

Mr H. Abdur Raqeeb, Convener, National Committee on Islamic Banking at the New Delhi-based Indian Centre for Islamic Finance (ICIF), made a strong pitch for these funds at the Infrastructure Conference-2011 that began here on Wednesday.

GOVT WELCOMES

Speaking to Business Line, the State Minister for Public Works, Mr V. K. Ibrahim Kunju, and the Secretary, PWD, Mr Manoj Joshi, said the State Government wholeheartedly welcomed Islamic funding agencies in the space of infrastructure development.

Infrastructure development is as Shariah-compliant a cause as they come, Mr Joshi said.

There is nothing that prevents these funds being channelised into the State’s developmental scheme of things, he added.

The PWD Minister concurred, but observed that the State’s own efforts to set up an Islamic financing institution were still in a ‘fluid stage.”

HIGH COURT ORDER

The Minister for Industries, Urban Development and IT, Mr P. K. Kunhalikkutty, too, underscored the importance of tapping the Islamic finance model at a time when traditional sources of funds are becoming either increasingly inaccessible or cost-prohibitive.

Meanwhile, Mr Raqeeb quoted a Kerala High Court observation that no specific prohibition was contained in any statute that made it impermissible to carry out Islamic banking in the country.

Simple regulatory changes could transform India into a regional hub for Shariah-compliant finance and clear the way for a much-needed wave of investment into its infrastructure, he added quoting international experts and consultants.

SHARED RISK

“When London, Tokyo, Hong Kong, Singapore and Paris have become Islamic banking hubs why can Kerala not become one and lead the country to become a developed economy in the near future?,” he wondered.

Islamic banking focuses on transparency, cooperative ventures, shared risk and ethical investing attracts a wide range of both Muslims and non-Muslims alike.

In Malaysian Islamic banks, more than 40 per cent of investors and 60 per cent of borrowers are non-Muslims, mostly Chinese.

One in five applicants for some of the Islamic products is a non-Muslim in the Islamic Bank of Britain.

ISLAMIC BONDS

Asset-backed Islamic bonds, known as ‘Sukuks,’ provide funds for long-term investment.

This tool is used in a number of developing and developed countries. India too should seek to make use of these resources, Mr Raqeeb said.

The fact is, Islamic finance can do wonders. Post 9/11, petro-dollars have been actively eyeing for a safe investment destination.

And this is the opportunity that India should avail of, given that it is not just a safe but vibrant investment destination.

HUGE MONEY

An estimated $1.5 billion in funds is sloshing around West Asia as of now. The region will have $8 trillion to invest by year 2020.

Ms Muliani Indrawati, Managing Director, World Bank, has confirmed that the World Bank Group has ‘formally recognised Islamic finance and has designated it a priority area in their financial sector programme.’

The World Bank has always closely cooperated with the Islamic financial services sector. This demonstrates its commitment to help strengthen the institutional development of the industry.

source : Business line : The Hindu

Court directive to State on Islamic banking firm

A Division Bench of the Kerala High Court on Thursday directed the State government and its instrumentalities to desist from participating in any way, financially or otherwise, in the business of a newly formed non-banking financial company, said to be based on Islamic laws, pending adjudication of the writ petitions challenging its formation.

The Bench of Chief Justice J. Chelameswar and Justice C.N. Ramachandran Nair passed the directive after hearing arguments on petitions filed by Al Barakh Financial Services Limited and the State government seeking to vacate an interim order.

The Bench had earlier directed the government and the Kerala State Industrial Development Corporation (KSIDC) to ensure that the newly formed company did not commence its operations until further orders from the court.

The interim order was passed on a writ petition filed by Janata Party president Subramanian Swamy against the government sanction given to the KSIDC to form such a company.

The Bench clarified that the interim order did not prohibit the company from carrying on its activities, provided such things were done in conformity with the law and after obtaining all clearances.

Dr. Swamy, opposing the pleas to vacate the interim order, submitted that there was no new development that warranted the lifting of the stay. He pointed out that the Union Finance Minister stated in the Lok Sabha on December 18, 2009 and March 5, 2010 that Islamic banking activities were not feasible in the current statutory and regulatory provisions.

RBI Deputy Governor Shyamala Gopinath had gone on record that the Islamic banking proposal had not come to the RBI because it was an issue between the Centre and the State. In fact, the RBI rejected such a proposal in 2007. The government and the KSIDC stated in their counter-affidavits that the company was RBI-compliant. He contended that the government order in this regard disclosed that it was an Islamic investment company. If the company was to function as per the Shariah laws, an amendment to the Banking Regulation Act would have to be made. The setting up of such a company with co-ownership of the state was ‘antithetical’ to equal treatment of all religions.

Equity

Dr. Swamy said that as per the government order, 11 per cent of the equity would be held by the KSIDC.

Counsel for the KSIDC submitted that the corporation had not yet made any investment in the company.

The government, in a counter-affidavit, refuted the allegation that the company would function in terms of the Shariah law.

The allegations were baseless and misleading. The company would function only in accordance with the RBI Act, rules and guidelines, it said.

source : hindu