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First Islamic banking launched

Kochi,Aug 19 () Islamic banking as per Sharia law has become a reality. Cheraman Financial services were launched by Kerala Industries Minister P K Kunhalikutty.

This is the first non-banking finance company to operate on the principle of not charging interest for loans and also not giving interest for deposits. This company is a joint venture between KSIDC (Kerala State Industrial Corporation) and Gulf-based NRIs. The company has Rs 1000 crore capital and Rs 250 crore is for venture capital funding. The NRI investors hold 9% shares each while KSIDC has 11%.

RBI had been refusing to allow Islamic banking in the country as the outgoing Governor had stated that it has legal problems. Indian banking permits to levy interest on loans and also gives interest on deposits. There is no sector that is taboo for investment as long it is profitable.

In Islamic banking, the money can be invested in tobacco and liquor industries and should not be used for speculative trading like the stocks. Finally circumventing the legal hurdles, the Reserve Bank granted license under the NBFC category.

SEBI has given the company permission to make funding of venture capital. Rs 50,000 crore earned by way of interest is lying in Kerala banks since it is from deposits of Muslims who practice the Sharia law. The Chairman of the company is P Muhammed Ali.

It will start its first branch in Kannur. Kannur Muslim Juma Ath will advise the NBFC on which projects it should fund. The company will fund infrastructure projects and start up projects as partners. To collect deposits, the company will hold road shows in the Gulf and Indian cities.

In the infrastructure sector it has Cheraman infrastructure Pvt Ltd which will operate on BOT basis with emphasis on Kerala. Cheraman Funds Management Ltd will finance start-ups and existing ventures that are looking for expansion. It has Rs 250 crore for such activities.