Malappuram:
The Kerala government has taken a huge step towards creating an Islamic bank which will comply with Shariah rules.
The Kerala High Court has dismissed a petition that said an Islamic bank violates the principle of secularism as laid out in India's constitution. The petition had been filed by former Law Minister Subramanian Swamy.
Shariah rules prohibit charging interest for loans and emphasise on the sharing of profits and losses. So, rather than earning interest on deposits, customers get a share of the overall profit reported by the bank.
So for home loans, for example, Islamic bank buys the home for the account-holder, who pays the bank back in installments. There are no penalties for late payments.
The LDF government in Kerala first floated the proposal for an Islamic bank two years ago. The Kerala High Court has ruled this week that by co-promoting a bank of this nature, the government is not throwing its weight behind a particular religious group. The Kerala State Industrial Development Corporation will hold 11 per cent stake in the bank.
"Though it is known as an Islamic bank, it is not a religious institution. It is another form of a venture capital fund where you do not accept or lend money for interest but will distribute a share of the profit," said the state's Finance Minister, Dr TM Thomas Issac.
Shariah laws prohibit investment in businesses that deal in goods or services considered contrary to principles of Islam. For instance, Islamic banks do not invest in companies that make liquor, tobacco and weapons.
The bank plans to raise an initial capital of 500 crore rupees from NRIs and will avoid all interest-linked business activities. It will provide interest-free loans for those looking to start new businesses and small-scale ventures. It will also invest in the infrastructure sector.
The activities of the bank will be supervised by a Shariah Supervisory Board which will include Islamic scholars.
The sanction for the Islamic bank comes three months ahead of elections in Kerala. Muslims constitute 25 per cent of Kerala's vote bank and recent elections have reflected that they are moving away from the Left Front government.
The Congress has not taken a stand on the issue, while the BJP has voiced its opposition. "This amounts to communalising the banking system in our country. According to law, even an ordinary charitable society or trust cannot be formed on the basis of caste, creed or religion. Then how can a bank be formed on this basis?" asked the party's president in Kerala, V Muraleedharan.