A move of Kerala government to set up Islamic bank in the state joining hand with KSIDC became controversial when an ignorant Janatha party president filed a complaint in Kerala High Court alleging violation of nation's secular norms.
A ONE of a kind move of Kerala government to set up Islamic financial system in the state joining hand with Kerala State Investment Development Corporation (KSIDC) became controversial as Janatha party president, Subramanya Swami, filed a complaint in Kerala High Court alleging the move is a violation of nation’s secular norms.
KSIDC was likely to start a non banking financial institution under the supervision of Reserve Bank of India accepting11% of the share from Kerala government. But by a fresh notice sent to the State Government and the RBI, the High Court stayed that move. KSIDC, knowing well that Islamic Banking is not allowed by Indian Constitution, decided to start the parallel institution on the basis of Islamic Sharia, an interest free banking, and on the grounds of Reserve Bank Act (chapter 3). As the Constitution 25, 26 acts allow the citizen to open such an institution; KSIDC got registered, without breaching any of the laws. The only difference that makes it different from other non banking institutions is that, it avoids the transactions on the basis of interest.
Understanding from the new studies, that the bulk of NRI Muslim investors are reluctant to invest in interest based economy, Kerala government decided to encourage them by setting up such an interest free institution. And also it foresaw that the new system will boost the development process of the state. Since it is open to non Muslim investors as well, obviously, it is not a tread against secularism. But the petitioner argued in his complaint against RBI and state government claiming KSIDC’s stimulus to set up the parallel institution is violation of secular ideas provided by the Constitution.
The people, who oppose the coveted opportunity blindly, must pay heed to the secular countries where the new Interest free system exists. In France, the Islamic bonds were legalized some weeks ago, and in America there are 20 Islamic banks (IBs) in addition to several Islamic bonds. In Britain not only the law is amended in favour of Islamic banking but the government is on the way to set London as the center of such institutions in Europe, and today as many as 23 IBs operate there. Singapore, China, and Malaysia are trying to become the hub of Islamic banking, amending the existing laws and encouraging such institutions. And it must be noticed that in Malaysia 40% of the investors are non Muslims. These countries give priority to Islamic Banking not because they keep commitment towards Islamic laws, but, with the understanding that this system has the strength to help economy to recover from the present financial crisis, they consider it as a mode to make a more stable fiscal system than the conventional one.
Islamic banking grows parallel to the conventional banking system. It aims at nothing but justice and equality, and will be an effective measure to eradicate poverty. It will also make the Inclusive growth possible. The Raghuram Rajan committee appointed by the Planning Commission on financial reforms in India indicates the importance of interest free banking in India.
As, many investors from the Middle East lost their confidence in western banks due to the on-going recession, they have more expectations from India and China, and apparently they wish to invest in an interest free economic system. If we promote them then we can magnetize them. All countries are striving to attract more foreign investments, and if India is taking a discouraging step towards the Islamic financial system on the pretext of its Islamic nature, it will impede nothing but our development. If Paris, London, and Singapore can make themselves more comfortable with the new system, why can’t Mumbai also try a hand?