Kerala to set up first Islamic i-firm

MUMBAI: The Kerala government, in partnership with a few private entrepreneurs, will set up India���s first government-controlled Islamic investment company. With a net corpus of Rs 500 crore, the Shariah-based investment firm will roll out Islamic leasing in the first phase and housing finance subsequently.

The Kerala State Industrial Development Corporation (KSIDC), along with a few NRIs (predominantly from the Gulf) and local entrepreneurs, will jointly float the fund. The state government will permanently hold 11% stake in the investment firm.

���The fund will start with a corpus of Rs 100 crore, in a year���s time, the equity base would be expanded to Rs 500 crore. The government has already set aside Rs 11 crore, as a draw-down for the first year,��� said a senior KSIDC official.

Although in its conception stage, the fund is witnessing good investor interest. Among other investors, P Mohamed Ali, managing director of Oman-based Galfar Engineering and Contracting Company; MA Yusuf Ali, owner of Dubai-based EMKE Group; promoters of Kerala-based Muthoot Group and Krishnan Menon, chairman of the Qatar-based Behzad Group, will invest in the company.

As per the memorandum of the investment firm, any shareholder who invests more than a crore will be entitled for directorship in the company. To start with, the firm will have nine working directors, two of whom would be from KSIDC.

���We���ll start off with Islamic leasing; in a year���s time, the company will start disbursing housing loans. It will also consider other Shariah-based investment options . Ernst & Young, in its feasibility study report, has proposed the formation of a non-banking financial company (NBFC) with more funding from central and state government agencies,��� the official said.

The firm will start Islamic leasing, which does not require any regulatory approvals , over the next few months. Islamic leasing, or Ijara, is a mark-up structure, where the investment firm buys capital equipment or property and leases it out under instalment plans to end-users . The bank being the owner of the asset is paid rent, fixed or variable, as agreed by the parties.

KSIDC has also approached the Mumbai-based Taqwaa Advisory & Shariah Investment Solutions to set up a Shariahadvisory board on capital investments, say sources. Shariah, the canonical law of Islam , has strictures regarding finance and commercial activities for believers.

Believers only invest in ���clean��� assets. They do not invest in companies dealing in alcohol, conventional financial services (banking and insurance), entertainment (cinemas and hotels), tobacco, pork, defence and weapons. Investing in companies with high-debt ratio is also considered unethical as per Shariat, say experts.