The Kerala High Court on 3rd Feb 2011, cleared the way for setting up the country’s first Islamic bank in this state. The court nod came after it dismissed two PILs challenging the setting up of an Islamic Financial Institution in the state on the lines of Islamic Banks with the support of Kerala State Industrial Development Corporation (KSIDC).
Kerala government justified its stand and assured that the islamic banks operation was commercial in nature and will not offend the secular principles of the Constitution. The bank will adopt the policy of zero interest to tap a huge number of Indians working in the Middle East. These NRI’s invest money in Islamic banks in the foreign countries. The funds collected in these Islamic Banks could be used in operating new projects in the state.
Al Barakh Financial Services, which is going to open islamic bank services with the support of Kerala State Industrial Development Corporation (KSIDC), assured the Court that funding of financial institution will be in strict adherence to the laws prevailing in the country as well as principles of Shariah.
The Kerala government had initiated formation of the first Islamic Bank in India in May 2009 and made KSIDC the nodal agency.
A few months later, an NBFC named Al-Baraka Financial Services was registered, as the first step towards starting a bank under the Sharia code. An NBFC was registered because the Banking Regulation Act does not allow operation of an Islamic bank. KSIDC has 13 per cent stake in the company. The rest is with Gulf-based Indian businessmen.
Islamic banking refers to a system of banking in accordance with the principles of Islamic law (Sharia) and its practical application through the development of Islamic economics. Sharia prohibits the payment or acceptance of interest on loans. Stressing on equity and justice, Islamic banking discourages debt and charging interest on debt.Google+