51 per cent of the equity in the venture will be held by the promoters, while the remaining 49 per cent will be issued to the public.

Vinson Kurian

Thiruvananthapuram, Sept. 16 The Kerala State Industrial Development Corporation (KSIDC) is teaming up with a core group of 20 private investors to set up a financial institution based on Islamic banking principles.

Efforts are in advanced stages for incorporating a company, subsequent to which the promoters would approach the Reserve Bank for a licence to operate a non-banking financial company.


It would be set up with an authorised capital of Rs 1,000 crore, says Mr T.P. Thomaskutty, Deputy General Manager-Business Development, KSIDC. The initial paid-up capital would be Rs 10 crore, of which KSIDC contribution would be 11 per cent, he told Business Line.

It has been agreed that 51 per cent of the equity in the venture will be held by the promoters, while the remaining 49 per cent will be issued to the public.

While the concept of interest is fundamental to business of banking, Shariah banking shuns the very concept of interest.

The investor/lendor does not get interest, but gets compensated through a form of profit-sharing.

The Raghuram Rajan Committee on Banking Sector Reforms had in its draft report recommended introducing Islamic banking in India.

A brainwave of the State Finance Minister, Dr Thomas Isaac, and the Industries Minister, Mr Elamaram Kareem, the launch of the proposed financial institution is timed to deal with the aftermath of global recession on migrant labour. In line with the Shariah principles, the institution would advance interest-free loans to expatriates returning home after losing to float their own enterprises.

The funds will also be used for implementing welfare measures for them.

The State has over two million people working outside the country, of them close to 90 per cent are employed in West Asia.

While institutions adhering to Islamic banking principles are not exactly new to India, the KSIDC initiative would stand out in terms of the size and scale of the investment committed, Mr Thomaskutty said. The group of private investors would have a fair representation of investors from within the State as well as non-residents based mostly out of the West Asia.

The proposed financial institution based on Shariah principles for conduct of business has evoked massive investor interest here and from abroad, say industry sources.

But they were of the view that the composition of the proposed board, which is skewed in terms of overwhelming NRI presence, should be suitably tweaked to ensure equitable representation of all geographical regions of the State.

(This article was published in the Business Line print edition dated September 17, 2009)
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