Government-backed Kerala State Industrial Development Corporation receives central bank approval to set up India’s first Islamic non-banking finance company - IFN

Government-backed Kerala State Industrial Development Corporation receives central bank approval to set up India’s first Islamic non-banking finance company

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INDIA: Kerala State Industrial Development Corporation (KSIDC) has received approval from the Reserve Bank of India (RBI) to establish a financial services company operating under the principles of Islamic finance. KSIDC will launch Cheraman Financial Services (CFSL) as a pioneer Shariah compliant non-banking financial company with an authorized capital of INR10 billion (US$159.43 million). RBI’s endorsement, coupled with the authorization from India’s regulators, the Securities and Exchange Board of India, will allow CFSL to enter into Shariah compliant venture capital funding activities. Speaking to Islamic Finance news, H Abdur Raqeeb, convenor of the National Committee on Islamic Banking and general-secretary of the Indian Center for Islamic Finance, says he welcomes RBI’s move in its support for KSIDC to float a non-banking finance company. In his campaign to advance the implementation of Islamic finance in the country, Abdur Raqeeb also noted the pending legal action in the Bombay High Court brought by Alternative Investments and Credit (AICL), a Kerala-based Shariah compliant investment firm, against an RBI order which revoked AICL’s NBFC license earlier this year. India’s Banking Regulation Act 1949 which prohibits banks to invest on a profit-loss sharing basis and requires all banks to pay interest is among the regulations that contradict the fundamental principles of Islamic finance, says Abdur Raqeeb. He also adds that Dr Raghuram Govind Rajan, whose appointment as the new governor of RBI which will take effect on the 4th of September, will positively facilitate the implementation of Islamic finance in India. According to CFSL’s chairman Muhammed Ali, the company will target the infrastructure, services and manufacturing sector as the license does not extend to commercial banking operations. The company, previously known as Al Baraka Financial Services, was established with equity participation of private investors, mostly from the Gulf and the KSIDC. CFSL’s maiden commercial venture will be in collaboration with an Indian charity organization, Kannur Muslim Jama-ath, across various infrastructure and development projects via the firm’s INR2.5 billion (US$39.86 million) venture capital fund. KSIDC is set to be the single largest shareholder with an 11% stake, while other individual shareholders are entitled to a maximum of a 9% shareholding in the company. With financing start-up projects being one of the company’s pilot programs, the Shariah compliant CFSL will be launching roadshows in India and several Gulf countries beginning next month.