Kerala studies Islamic finance options - Arab News

The Middle East's Leading English Language Daily 12/10/2009 Islamic Banking Special Supplement:  Kerala studies Islamic finance options  Ashraf Padanna | Arab News  A two-day international conference held here early this month has laid out a road map for exploring possibilities of Islamic banking and finance in the southern Indian state of Kerala where Muslims constitute 26.8 percent of its 30 million-plus population. "Islamic finance has immense potential in India as the country has the world's third highest population of Muslims. Islamic finance is based on Islamic principles and at the same time, applicable to the whole society," said E Ahamed, India's junior minister for railways who inaugurated the conference attended by a large number of experts in the field, bureaucrats, professionals and academicians. Presenting the blueprint for Islamic finance institutions in Kerala on a public-private partnership model, T Balakrishnan, the state's principal secretary for industries, said Kerala would be the first Indian state to introduce Islamic finance. The Kerala State Industrial Development Corporation (KSIDC) under his department has floated a new Islamic finance company that will open its first branch in the port city of Kochi soon and hopes to rope in global institutions pioneering in the field as partners. He said there was a growing demand for project and infrastructure financing complying Shariah principles, especially from the Keralites working in the Gulf Cooperation Council (GCC) countries whose remittances are considered the lifeline of the consumerist state's economy. "The need for setting up Islamic financial institutions assumes significance in the light of huge foreign direct investment (FDI) inflow from the GCC countries into India. The KSIDC has already held a series of discussions with consultants, Shariah experts and government bodies in this regard," he said. Ernst & Young, one of the world's largest professional services firms, conducted a feasibility study involving its team from Dubai for the KSIDC. The report covered all aspects of the Shariah-compliant financial products and their scope for Kerala, its regulatory aspects, legal entity options and business models. "The Islamic financial products analyzed by E&Y include Al-Bai Bithaman Ajil, murabahah, musharakah, ijarah, istisna, sukuk and takaful," he said. The new firm was registered as a deposit accepting nonbanking financial institution under India's Companies' Act as the RBI (Reserve Bank of India) is yet to give clearance for Islamic banks. The company has an authorized equity capital of Rs.10 billion and an initial paid-up capital of Rs.100 million contributed by the KSIDC. Besides the KSIDC and other state-owned entities, the company will have resident and nonresident Indians and individual firms as its shareholders. The KSIDC has also constituted a core group interested in the venture. The activities include investments, leasing, retail and corporate financing, private equity and venture capital funds and property management solutions. The recommendation was for providing 10 percent seed capital for the VC fund as a trust registered with the Securities and Exchange Board of India and act as an adviser. He informed the gathering that the KSIDC has also started recruiting key persons and is in the process of constituting a Shariah advisory board. Headquartered in Kochi, it plans to open branches at 30 centers including Kasaragode, Kannur, Kozhikode, Malappuram, Palakkad, Thrissur, Kollam and Thiruvananthapuram in a phased manner. It will gradually have branches all over the country. "We also need to develop Shariah-compliant financial products suitable for Indian market conditions," he said. "The (federal) regulatory constraints also should be removed and suitable changes made in the tax structure in which some progress is visible". Stressing the need for a wider propaganda for the interest-free financing, he said an overall level playing field should be developed for Islamic financing vis-à-vis conventional financing. "Our aim is to grow into a full-fledged global Islamic bank," he explained. Prominent NRI businessmen like Mohammed Ali of Oman's $1 billion Galfar Engineering and Contracting Group and Yusuffali MA of the Middle East's retail major Emke group and Azad Moopen of the Moopen's group are members of the project's core committee. Kerala banks are sitting on huge annual remittances of Rs.370 billion from the state's two-million strong workers abroad, 90 percent of them in the Gulf countries and a good chunk of them are practicing Muslims who do not like to claim interest on their deposits. These banks have a huge corpus of an estimated Rs.50 billion with them as unclaimed interests. According to a recent study by the Center for Development Studies (CDS), Muslims constitute 50 percent of all emigrants from Kerala and they contribute half of the remittances. One in every two Muslim households (52.5 percent) has an emigrant. The Islamic banking system is expected to strengthen their financial inclusion helping in their socio-economic and educational uplift. H. Abdur Raqeeb, the general- secretary of the New Delhi-based Indian Center for Islamic Finance who addressed the conference, said the interest-free banking would revolutionize India's economic scenario by unleashing massive financial resources lying dormant because of the non-availability of a suitable environment. "If Islamic banks can operate in London, Singapore and Tokyo smoothly, why can't it be in Mumbai and Kochi?" he asked. "It's a fact that hundreds of billions of rupees is lying in suspended accounts in banks across India, unclaimed for reasons of faith. The face of the minority community would change forever if the government did something to unlock this money. It will open the floodgates of investments from abroad as well". According to him, oil money is looking for safe investment destinations post 9/11 and India could tap this opportunity as it boasts of a stable economy largely unaffected by global financial mess, provided there is a favorable change in the regulatory environment. Prime Minister Manmohan Singh, himself a reputed economist who is said to be keen on the prospects of Islamic financial options for the country, has constituted a committee of secretaries, headed by the Cabinet secretary, to look into the suggestions on licensing Islamic banks. The committee is yet to submit its report. Industries Minister Elamaram Kareem presided over the inaugural session of the conference organized by the postgraduate department of the Rouzathul Uloom Arabic College with the support of the Islamic Development Bank (IDB), Jeddah, the KSIDC and the University Grants Commission (UGC). Some 200 delegates both from India and abroad participated in the conference. Hussein Madavoor, the college's principal welcomed the delegates and made introductory remarks. Speakers included Prof. KA Jaleel, a former vice-chancellor of the University of Calicut, Ahmed Salem Waheshi, Arab League Ambassador to India, Abdurahman Al-Tamami from the education department of the Kingdom, Esam M. Ishaq (Bahrain), Mohammed Obaidullah, Senior Economist, IDB-Jeddah, Muhammad Jabir Al-Yamani, of the King Saud University, Riyadh, Abdurrahman Ahmed Bajendoh of the World Assembly of Muslim Youth, and Sheikh Khalaf bin Sulaiman Annamari, Adviser, Rabithathul Alamul Islami.

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