The State Government's favourable disposition to setting up a financial institution based on Sharia principles (interest-free), has received further endorsement from the Budget presented by the Finance Minister, Mr K. M. Mani, on Friday.
The Finance Minister had said efforts would be made at raising resources from the proposed financial institution for a road development project, an idea originally mooted by predecessor Dr Thomas Isaac.
PRACTICAL DIFFICULTIES
But Mr Mani regretted that he would not be able to push the initiative during the course of the rest of the financial year “due to some operational difficulties.” Earlier in February, while presenting the last Budget on behalf of the outgoing Government, Dr Isaac had proposed that up to Rs 40,000 crore could be raised from this “untapped alternative source of finance.”
Huge investments were needed in infrastructure to sustain the State's current growth rate and improve on it, Dr Isaac had reasoned.
The State could not hope to raise or borrow funds of such big size and the solution lay in setting up special purpose vehicles for that purpose.
This sentiment found expression in recent times in a national seminar on ‘Interest-free institutional mechanism for banking, finance and insurance.' Inaugurating the seminar, the Chief Minister, Mr Oommen Chandy, had said his Government would extend all support to setting up an ‘interest-free institutional mechanism' for banking and finance.
The State has already co-promoted such a venture, Al Barakh Financial Services, which has been registered under the Companies Act.
The Government would move the papers for getting the Reserve Bank's permission to secure the required licenses for this company.
It aims at utilising funds at the disposal of the people, especially those working in West Asia , for infrastructure development in the State.
According to Dr Isaac, who also spoke on the occasion, the State had entered a new phase over the past few years growing at a clip faster than the national.
The Banking Regulations Act does not permit a conventional financial institution or bank functioning under non-interest principles.
The Reserve Bank may consider the case of Al Barakh Financial Services as a non-banking financial company, Dr Isaac said.
Leading West Asia--based serial entrepreneur Mr Mohammed Ali is the Chairman of the company.
It has been conceived as a private-public venture with 11 per cent equity for Kerala State Industries Development Corporation, a public sector unit. The promoters have already resolved to raise an initial capital of Rs 1,000 crore.