The approval of an NBFC (Non-Banking Financial Company) of Kerala named Cheraman Financial Services based on Islamic principles by Reserve Bank of India is to be welcomed by all.
Cheraman Financial Services Ltd is a joint venture of Kerala State Industrial Development Corporation (KSIDC) with 11% share and some of the prominent NRIs of Kerala with 89% share and it is expected that very soon Islamic Finance will be introduced in the banking sector.
In 2009, LDF Government of Kerala launched an NBFC named Al Barakah Financial Services along with a few NRI businessmen based in the Gulf and KSIDC to work on Shari’ah principles after a feasibility report prepared by Ernst and Young. But Dr Subramanian Swamy filed a petition against this Shari’ah-based NBFC stating that in a secular country like India, business activities based on the line of religious principles of Shari’ah and supervised by a Shari’ah Board is against the secular ethos of the country and the taxpayers’ money cannot be invested in such a venture. After a prolong discussion and debate the Kerala High Court, in February 2011, dismissed Dr Swamy’s petition, asserting that Shari’ah-based business activity is not against the secular principles of the Indian Constitution.
Soon after the formation of the UDF Government, the matter was pursued further and culminated in the formation of the newly named Cheraman Financial Services Ltd instead of Al Barakah Financial Services. Cheraman is the name of the Malabar king who had embraced Islam after witnessing the miracle of Shaqqul Qamar.
In some of the media reports, it is wrongly stated that RBI has approved Islamic Banking. It is not correct; it is only a Non-Banking Financial Company which cannot accept public deposits and issue cheques to customers to withdraw cash.
Cheraman Financial Services is divided in three divisions in their activities – Leasing, Infrastructure Development and Fund Management. The company has 10 directors, a mix of well-known personalities from different communities and backgrounds. Noted businessman and philanthropist Dr Mohamed Ali of Galfar Group is the Chairman, and Padma Shri CK Menon is the Vice Chairman and APM Mohd Hanish, IAS, is the Managing Director.
Another significant development is the appointment of renowned, internationally acclaimed economist and financial expert Dr Raghuram G Rajan as the Governor of Reserve Bank of India (RBI) after the retirement of Dr D Subbarao.
Dr Rajan, former Chief Economist of IMF, was appointed Chief Economic Advisor to Ministry of Finance prior to his new stint in RBI. In 2008, he headed a high level committee on financial sector reforms (CFSR) of the Planning Commission in 2008. On intervention of ICIF and other individuals and institutions, Dr Rajan had included the recommendation to introduce Interest-free finance in the banking sector for growth with inclusion and innovation.
Now when he is at the helm of affairs as Governor of RBI, it is hoped that he would implement the recommendation of CFSR of introducing Islamic Finance products in the main banking sector.
A delegation of ICIF consisting of Mr H Abdur Raqeeb, General Secretary ICIF; Mr Khushid Najmi, former Joint Legal Advisor to RBI and Mr Abdul Rahman MP of Vellore constituency, Tamil Nadu met Dr Rajan in December 2012 at the Ministry in New Delhi. Dr Rajan assured the delegation that he is committed to introduce the alternate system of Islamic Banking.
Mr K Rahman Khan, Union Minister of Minority Affairs had too discussed with Dr Rajan the financial inclusion of Muslims and pleaded to accommodate Islamic Banking along with conventional banking.
Mr Wajahat Habibullah, Chairperson, National Commission for Minorities urged the Prime Minister Dr Manmohan Singh and wrote to PMO to take up the implementation of Islamic Finance and Banking.
These efforts, and more particularly Dr Raghuram Rajan’s appointment as RBI Governor, there seems to be a positive signal that very soon Islamic Financial products will be accommodated in the banking sector for the inclusive growth of the marginalised and the minorities as well as the development of infrastructure in the country.
[The writer is Convenor of National Committee on Islamic Banking, and General Secretary of Indian Centre for Islamic Finance]