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Kerala opens door to Islamic banking, to set up interest-free financial institutions: Minister

Kerala opens door to Islamic banking, to set up interest-free financial institutions: Minister

Author: Najiya O
Publication: TwoCircles.net
Date: July 22, 2009
URL: http://www.twocircles.net/2009jul22/kerala_opens_door_islamic_banking_set_interest_free_financial_institutions_minister.html

The Kerala government has begun the procedures for opening interest-free financial institutions on the model of Islamic banking, said Dr TM Thomas Isaac, state Finance Minister. A committee to be chaired by renowned businessman Gulfar Muhammedali has been constituted for the purpose, he announced while inaugurating an international seminar on the global financial crisis in Thiruvananthapuram.

The interest-free institution will also help those who return from the Gulf countries after losing jobs. Interest-free loans will be provided to these people to help them find employment. The money invested in the institutions will be re-invested in other ventures and the profit will be distributed among the investors (according to their share). Talks are going on with institutions including the Reserve Bank of India in this regard. The institution aims to function on investments including those from the Gulf countries, Mr Isaac added.

Though the institution will be set up in the private sector under the Kerala State Industries Development Corporation, its functioning will be as per the norms and directions of the government. The government will, reportedly, have 10% share in it.

The promoters' committee formed under the chairmanship of Gulfar Muhammedali comprises of NRI businessmen. The committee will meet next month in Kozhikode to draw a final draft of the plan. The government hopes to begin the institute in six months. The decision to begin such institutes was taken after a study conducted by the Industries department about the interest-free financial institutions of Europe.

"This is not totally new in the world," said Prof K Abdulla Hasan, director of Centre for Research and Advanced Studies at Al Jamia al Islamiya, Shanthapuram. "Many countries including the USA and Britain have begun chapters of interest-free banking and they are functioning successfully. For example, in Qatar, when regular banks provide 8% interest, Islamic banks provide 12% dividend for the investors. This decision to set up interest-free banks has come at a time when the world economy based on interest has clearly shown its defeat. This is indeed a welcome decision," added Abdulla Hasan who teaches Islamic Economy to the students of PG Diploma in Islamic Finance in the Al Jamia al Islamiya (Islamic University).

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