The Kerala State Industrial Development Corporation (KSIDC) has partnered with Cheraman Financial Services Limited, a Kochi-based Islamic fund. KSIDC has 11 per cent share in the Rs. 250 crore fund which is a shariah-based entity aimed at funding selected sectors.

Cheraman is the new avatar of the Al Baraka fund proposed by KSIDC two years ago.

The Al Baraka initiative was intended to mobilise funds from Muslim expatriates, mainly from the Gulf countries, and utilise it for industrial development projects in the State. It is also understood to be the first of its kind in the country.

Islamic funds are in operation in various countries such as United Kingdom and Malaysia.

The KSIDC move had received a jolt when the High Court had stayed it temporarily, following a writ petition filed by Janata Party leader Subramanian Swamy challenging the constitution of the fund.

The shariah-compliant fund can be deployed in specified projects only. Liquor manufacturing and speculative businesses are forbidden under the Islamic banking regime. There is no place for money accrued as interest on capital.

Mr. Swamy had raised key questions of fundamentalism in banking and the State’s involvement in Islamic banking in a secular country. The court rejected the arguments, but one of the important aspects revolved around the question of the Reserve Bank of India (RBI) according permission to Islamic banking.

RBI Governor D. Subbarao, during his recent visit to the city to declare Ernakulam as a fully banked district, had responded to the issue, stating that the Banking Regulation Act did not permit Islamic banking in the country. He had also said that alternative modes were available for raising funds.

While the RBI is understood to have retained its position so far, the KSIDC has chosen an alternative route to join hands with the Islamic fund managers.

Cheraman has received the go-ahead from the Securities and Exchange Board of India (SEBI) and has been registered as a trust, according to a spokesman of the company.

A Bombay-based committee of experts would examine the projects for sharia-compliance, the spokesman said. Three projects were under consideration for funding, he said. A.P.M. Mohammed Hanish, Managing Director of Roads and Bridges Development Corporation of Kerala Limited, who heads the new venture, said the funds would be deployed in companies adopting ethical investment procedures.

When contacted, Subramanian Swamy said he was not aware of the details and was sceptical. Would there be documentary evidence on Shariah compliance, he asked.

The original entity was conceived as a non-banking finance company which came under RBI rules applicable to the sector. With the fund managers approaching SEBI and getting its nod, the NBFC hurdle could be avoided, paving the way for the new Islamic fund.

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