A major judicial hurdle has been removed for setting up the country’s first Islamic bank, which is based on the principle of profit sharing rather than charging interest.
The Kerala high court on Thursday dismissed Janata Party leader Subramaniyam Swamy’s plea challenging the state government’s decision to start the country’s first Islamic bank.
The petitioner contended the idea of the state setting up a bank based on a religion would go against the principles of secularism enshrined in the Constitution. However, the division bench headed by chief justice J Chalameswar did not agree, observing it wouldn’t impinge on secular values.
However, Swamy said he would move the Supreme Court on this.
The state had floated the idea of an Islamic bank two years ago and it was registered under the name Al-Barka Financial Services, to be based in Kochi. The government-run Kerala State Industries Development Corporation held an 11 per cent stake in the bank. But the plan soon ran into rough weather after the RBI objected to it saying current laws do not permit such banks.
The state was earlier planning to raise Rs 500 crore from leading non-resident Indians and distribute the principal interest-free to the needy based on their requirements. Besides, it also planned to invest this money in infrastructure.
The concept received wide publicity as a large number of Muslims are practising sharia (code of Islamic jurisprudence) principles in their business. In many banks in the state, especially in northern Malabar, crores of rupees are lying idle because believers refuse to accept interest. It is this non-performing asset that the government was eyeing.
The government also said it would appoint independent Sharia scholars to oversee its running.
Islamic banking is popular in West Asia and other Muslim-dominated countries such as Indonesia and Malaysia. Many leading banks have Islamic banking windows there.