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An interest-free cooperative bank modelled on the lines of the Islamic banking system – possibly
the first of its kind in India – was launched in Kerala on Monday with the support of the
Communist Party of India (Marxist).

Islamic banking is a system that complies with the Shariat or Islamic law. Under the tenets of the
Shariat, charging or offering interest is looked at as an excess (or Riba).

The bank, in Kerala’s Kannur district, hopes to attract investments from devout
Muslims who had kept away from the formal interest-based banking system as it went
against their religious laws.
The Islamic banking system also prohibits investment in any business that is
deemed haraam, such as activities related to pork, alcohol or gambling. The
cooperative bank will thus only invest in ventures that are permissible under Islamic
law.

The cooperative institution has been named Halal Fayidah, meaning profit made from
permissible businesses. “The bank will invest only in Halal business ventures,” said M
Shajar, the chief promoter of the bank and a district committee member of the
CPI(M). “At present, we are planning to invest in meat processing units, construction
and contracting businesses.”

The profit accruing from the investments will be shared between the shareholders and
customers of the bank. Once the bank starts making profits in a few years, it will offer
interest-free loans, said Shajar.

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With the launch of the bank, the CPI(M) also hopes to get the support of Kerala’s
Muslim community, which makes up 27% of the state’s population.

Awaiting take-off
Halal Fayidah will become fully operational in September by raising a capital of Rs five crore
through the sale of shares, which began on Monday. Shajar, the Kannur district president of the
Democratic Youth Federation of India, the youth wing of CPI(M), said the shares would be open
to members of all religions. “It is not a bank exclusively for Muslims. We welcome people from
all religions to associate with this initiative,” he said.

The bank also has the support of 21 CPI(M)-backed minority organisations, who will buy shares
and help spread the word about the initiative.

The concept of Islamic Banking is yet to take off widely in India. In 2016, the Reserve Bank of
India had suggested that conventional banks open “Islamic windows” to gradually introduce
Sharia-compliant banking. However, no deadline has been set for this. In 2008, Raghuram Rajan
(who went on to serve as RBI governor from 2013 to 2016) had suggested the introduction of
Islamic banking in India, arguing that it would encourage financial inclusion.

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In Kerala, both the CPI(M)-led Left Democratic Front that is currently in power and the previous
Congress-led United Democratic Front regime had spoken of introducing Islamic banking
services.
The first Islamic non banking financial services company in the country – Cheraman Financial
Services Limited – was also opened in Kerala in 2013, when the United Democratic Front was in
power.

Finance Minister and CPI (M) leader Thomas Isaac is also a known advocate of the interest-free
banking system.

Minority appeasement?
CPI(M) leaders said they were not worried about accusations that the opening of the Sharia-
compliant cooperative bank was a tactic for minority appeasement

“We have been mulling over the concept for more than 10 months,” Shajar said. “But
demonetisation [enforced in November] delayed our plans.”

CPI (M) Kannur district secretary P Jayarajan told Scroll.in that interest-free banking system
would help poorer sections of the society. “The returns on investments would be utilised for
social service,” he said. “The bank is run by a co-operative society. There is no question of
minority appeasement. The membership is open to people from all religions. Only communal
parties will make such allegations.”

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Responding to concerns that have been raised about how Muslims will take to an initiative
supported by the communist party, Shajar said, “Things have changed in Kerala. Muslims no
longer view CPI(M) with suspicion. That is how the party made strong gains in Muslim pockets
in the state.”

Muslim leader and president of Kannur Muslim Jama’at Committee, Dr P Salim, who attended
the cooperative bank’s launch ceremony, said he has no doubts about the initiative’s successive.
“I think non-resident Keralites will also invest heavily in the Halal Fayidah bank,” he said. “It is
not against their religious beliefs. Besides, the bank provides them investment opportunity in
business.”
These days halal financing can be hard to find, and the current economic model has
led to the financial stress on the poor increasing day by day. However, in the small
city of Bhatkal in India, an Islamic institution aims to provide a ray of hope to those in
need.

The Islamic Welfare Society Bhatkal provides interest-free Islamic loans to those who
need it unlike traditional banks that often charge high interest rates. As a result, this is
a very convenient option for borrower, many who are poor. The money being lent out
is financed by the mosque.

Rather than charging interest, the Islamic Society accepts jewellery and gold as
collateral.

However, in their 33 years of service, they have yet to sell or auction off a single
piece of jewellery or gold, showing how sustainable their model is, for both
themselves and the borrower.

This service is not designed for Muslims only and people of any faiths are welcome to
take our loans. 30% of their customers are non-Muslim!

Unfortunately, the Indian government has yet to recognise the organisation as a bank,
and therefore they have to operate as a society in Bhatkal.

Nevertheless, the Islamic Welfare Society Bhatkal is a shining example of how an

Islamic institution can thrive in helping those in need in through Islamic teachings and
principles.