It said it had obtained approval to operate from the RBI 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,” a spokesman for Cheraman, formerly known as Al Barakah Financial Services, told Reuters. He did not elaborate on the design of the products. Instead of interest, Islamic finance uses structures such as asset buy-backs and agency agreements to provide returns to investors.
India central bank allows non-bank Islamic finance firm
The RBI did not respond to a request for comment on Cheraman’s case. But its decision appears to open the door to the possibility of more NBFCs offering Islamic non-interest products in future, even though full-fledged Islamic banks are expected to remain banned. RBI governor Duvvuri Subbarao, who will step down in September, has said Islamic banking is not possible in the country but sharia-compliant products could be delivered through alternative means. LEGAL CHALLENGE Last year, the RBI directed Kochi-based Alternative Investments and Credits Ltd (AICL) to stop its non-interest NBFC business almost a decade after the firm was launched. This prompted an ongoing legal challenge by AICL.