Financial inclusion

With first Sharia-compliant co-op bank in Kerala, has Islamic banking moved ahead in India?

The ‘Halal Fayidah’ bank aims to attract devout Muslims who are out of the conventional banking system as giving and charging interest is against Islamic law.

An interest-free cooperative bank modelled on the lines of the Islamic banking system – possibly the first of its kind in India – was launched in Kerala on Monday with the support of the Communist Party of India (Marxist).

Islamic banking is a system that complies with the Shariat or Islamic law. Under the tenets of the Shariat, charging or offering interest is looked at as an excess (or Riba).

The bank, in Kerala’s Kannur district, hopes to attract investments from devout Muslims who had kept away from the formal interest-based banking system as it went against their religious laws.

The Islamic banking system also prohibits investment in any business that is deemed haraam, such as activities related to pork, alcohol or gambling. The cooperative bank will thus only invest in ventures that are permissible under Islamic law.

The cooperative institution has been named Halal Fayidah, meaning profit made from permissible businesses. “The bank will invest only in Halal business ventures,” said M Shajar, the chief promoter of the bank and a district committee member of the CPI(M). “At present, we are planning to invest in meat processing units, construction and contracting businesses.”

The profit accruing from the investments will be shared between the shareholders and customers of the bank. Once the bank starts making profits in a few years, it will offer interest-free loans, said Shajar.

With the launch of the bank, the CPI(M) also hopes to get the support of Kerala’s Muslim community, which makes up 27% of the state’s population.

Awaiting take-off

Halal Fayidah will become fully operational in September by raising a capital of Rs five crore through the sale of shares, which began on Monday. Shajar, the Kannur district president of the Democratic Youth Federation of India, the youth wing of CPI(M), said the shares would be open to members of all religions. “It is not a bank exclusively for Muslims. We welcome people from all religions to associate with this initiative,” he said.

The bank also has the support of 21 CPI(M)-backed minority organisations, who will buy shares and help spread the word about the initiative.

The concept of Islamic Banking is yet to take off widely in India. In 2016, the Reserve Bank of India had suggested that conventional banks open “Islamic windows” to gradually introduce Sharia-compliant banking. However, no deadline has been set for this. In 2008, Raghuram Rajan (who went on to serve as RBI governor from 2013 to 2016) had suggested the introduction of Islamic banking in India, arguing that it would encourage financial inclusion.

In Kerala, both the CPI(M)-led Left Democratic Front that is currently in power and the previous Congress-led United Democratic Front regime had spoken of introducing Islamic banking services.

The first Islamic non banking financial services company in the country – Cheraman Financial Services Limited – was also opened in Kerala in 2013, when the United Democratic Front was in power.

Finance Minister and CPI (M) leader Thomas Isaac is also a known advocate of the interest-free banking system.

Minority appeasement?

CPI(M) leaders said they were not worried about accusations that the opening of the Sharia-compliant cooperative bank was a tactic for minority appeasement

“We have been mulling over the concept for more than 10 months,” Shajar said. “But demonetisation [enforced in November] delayed our plans.”

CPI (M) Kannur district secretary P Jayarajan told Scroll.in that interest-free banking system would help poorer sections of the society. “The returns on investments would be utilised for social service,” he said. “The bank is run by a co-operative society. There is no question of minority appeasement. The membership is open to people from all religions. Only communal parties will make such allegations.”

Responding to concerns that have been raised about how Muslims will take to an initiative supported by the communist party, Shajar said, “Things have changed in Kerala. Muslims no longer view CPI(M) with suspicion. That is how the party made strong gains in Muslim pockets in the state.”

Muslim leader and president of Kannur Muslim Jama’at Committee, Dr P Salim, who attended the cooperative bank’s launch ceremony, said he has no doubts about the initiative’s successive. “I think non-resident Keralites will also invest heavily in the Halal Fayidah bank,” he said. “It is not against their religious beliefs. Besides, the bank provides them investment opportunity in business.”

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