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Mumbai: India’s central bank has licensed a company in the southern state of Kerala to operate as a Non-Banking Finance Company (NBFC) that follows Islamic principles – a small step towards developing a finance Shariah compliant in the country.

An estimated 177 million Muslims in India, the largest Muslim minority population in the world, cannot use Islamic banks because laws governing the sector require banking to be interest-based, which is prohibited in the Islamic banking system. ‘Islam.

But some companies, particularly in Kerala which has a large Muslim population and a foreign diaspora of workers who send money from the Gulf, are nonetheless trying to develop Islamic financial products outside the banking sector.

Cheraman Financial Services, based in the city of Kochi in Kerala, plans to offer leasing and equity financing products according to Islamic principles. He said he had obtained permission to operate from the Reserve Bank of India and would follow the Islamic ban on interest; it will not take deposits from customers.

“We propose to roll out the products by the end of August,” said a spokesperson for Cheraman, formerly known as Al Barakah Financial Services.

He did not specify the design of the products. Instead of interest, Islamic finance uses structures such as asset buyouts and agency agreements to provide returns to investors.

The RBI did not respond to a request for comment on Cheraman’s case. But his decision appears to open the door to the possibility that more NBFCs will offer interest-free Islamic products in the future, although full-fledged Islamic banks are expected to remain banned.

RBI Governor Duvvuri Subbarao, who will leave office in September, said Islamic banking was not possible in the country but Sharia-compliant products could be provided through other means.

Last year, the RBI ordered Kochi-based Alternative Investments and Credits Ltd (AICL) to halt its interest-free NBFC business nearly a decade after launching the business. This has resulted in an ongoing legal challenge by AICL.